Glossary

Bequest

Testamentary gift of personal property, traditionally other than money.

Charitable Remainder Annuity Trust

A trust that pays a fixed amount of income annually to a non-charitable beneficiary. The remainder goes to charity.

Charitable Remainder Trust

An irrevocable trust with both charitable and non-charitable beneficiaries. The grantor transfers highly appreciated assets into the trust and retains an income interest. At expiration of the income interest, the remainder in the trust passes to a qualified charity of the grantor's choice. If properly structured, the CRT permits the grantor to receive income, estate, and/or gift tax advantages. These advantages often provide for a much greater income stream to the income beneficiary than would be available outside the trust.

Charitable Remainder Unitrust (CRUT)

A trust designed to permit periodic payment of a certain percentage of the fair market value of the trust to a noncharitable beneficiary. The remainder goes to a charity.

Co-tenant

A tenant of jointly held property.

Co-trustee

A joint trustee, sharing responsibilities such as investment of estate assets, determination of the amount of discretionary distributions, etc.

Codicil

A will that modifies or partially revokes an existing or earlier will. An instrument in writing executed by a testator for adding to, altering, explaining or confirming a will previously made by the testator. Executed with the same formalities as a will and having the effect of bringing the date of the will forward to the date of codicil.

Common Law State

States other than the nine community property states. In common law states, property acquired during a marriage is historically considered to be owned only by the husband during life and transferable only by the husband at death, subject to the wife's dower and right of election.

Community Property State

One of nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) in which all property acquired during marriage, except by gift or inheritance, by either or both of the spouses is considered to be owned equally by them, and with each having the right to transfer his/her one-half share in that property (the "community") freely at death. Alaska might also be considered as a community property state because spouses there may elect to treat their property as community property.

Corpus

The assets of a fund from which income is derived.

Corpus of a Trust

The assets held by a trust from which income is derived.

Credit Shelter Trust

Arranged for an estate to be divided into two parts at the end of a grantor’s lifetime. The first part passes directly to the designated spouse tax free because of unlimited marital deduction. The second part maximizes the benefit of the unified credit exclusion to minimize estate tax liability for the surviving spouse and continuing beneficiaries.

Crummey Trust

Gifts assets to children. Structured to assure a current gift removes the assets from grantor’s estate while keeping the assets in trust for a child until an age, or series of age steps, the grantor deems appropriate. A crummey trust creates a present interest by giving a child the right to withdraw each gift to the trust for a period of 30 days. Once the withdrawal deadline lapses, the assets remain in the trust until distribution in accordance with the terms of the trust.

Custodian

A financial institution such as a bank or trust company that holds a person’s or company’s cash and securities for safekeeping. A person named by a donor or personal representative to hold and manage property on behalf of a minor, generally under a statute such as the Uniform Transfers to Minors Act of the donor's or representative's resident state. A custodianship is similar to a trust for a minor beneficiary, although a custodianship, as specified by law in most states, ends when the minor attains the age of majority, while a trust continues according to its terms.

Disclaimer Trust

A credit shelter trust provided in a decedent's will or living trust as the contingent beneficiary of the applicable exclusion amount and with its primary beneficiary being the surviving spouse, who can then elect:

• To keep all or part of decedent's gift of the applicable exclusion amount, with the understanding that it will be subject to estate tax at the surviving spouse's later death
• To disclaim all or a part of the gift, in which case, the disclaimed assets will pass to decedent's contingent beneficiary, his/her credit shelter trust, which won't be subject to estate tax at the surviving spouse's later death

Discretionary Trust

A trust that allows its trustee to pay as much trust income or principal or both to the beneficiary as the trustee sees fit or according to more defined terms specified in the trust.

Durable Power of Attorney

A power of attorney such that the agent's authority survives any loss of disability by the principal after its grant or execution.

Durable Power of Attorney for Assets

Grants to the agent decision-making powers related to the principal's financial, property, and estate planning matters.

Durable Power of Attorney for Health Care

Grants to the agent decision-making powers related to the principal's health care. Powers generally include the ability to make informed consent to health care decisions, to receive and inspect medical records, to have the principal moved or discharged, etc.

Dynasty Trust

Enables grantors to provide for children and future generations. Holds assets without transferring direct ownership to beneficiaries. Successive generations can receive distributions from trust assets or assets that remain held in trust, allowing for future benefit and growth.

Equitable Interest

Interest held by a beneficiary of a trust with the right to use or receive property held by the trust according to its terms.

Escheat

The transfer of property from a decedent's estate to the state due to decedent's having no known beneficiaries or heirs.

Estate

The aggregate of all property and interests in property owned by an individual. Comprises all assets an individual owns at time of death, including securities, real estate, interests in business, life insurance, physical possessions, stocks, bonds, cash, etc. A decedent's estate is equal to the total value of assets as of the date of death.

Estate (Gift) Tax

A tax levied by the federal government on any property or interest in property transferred to another. Assessed against all assets or interest held at a decedent’s time of death.

Estate Plan

Orderly arrangement of one's financial affairs to maximize the value transferred at death to the people and institutions of choice with minimum loss of value from tax exposure and forced liquidation of assets.

Estate Tax Exemption

The aggregate value of assets, currently $1,000,000, that may pass estate or gift tax free. The applicable exclusion amount for estate tax purposes will increase over time, the next time being in 2007, to $2,000,000, while the applicable exclusion amount for gift tax purposes will remain at $1,000,000.

Executor

A person designated in a will to administer the testator's estate upon his/her death.

Family Pot Trust

A trust that allows its trustee to pay as much trust income or principal or both to one or more of a class of beneficiaries (not necessarily equally) as the trustee sees fit or according to more defined terms specified in the trust.

Fiduciary

A trustee, executor, personal representative or administrator, who is legally required to act in good faith and in the best interests and trust of a beneficiary.

Five and Five Power

An express IRS exception to the general power of appointment rules. If provided for in a trust, a beneficiary may have the power to withdraw annually up to the greater of $5,000 or five percent of trust principal without that power's being considered a general power of appointment and causing all the trust principal to be included in his/her estate at death for estate tax purposes.

General Power of Appointment

Right held by one person to dispose of interest in property without any limitation as to its recipient, specifically, that the holder may exercise the right in his/her favor. Any property subject to a general power of appointment is includible in the estate of its holder for estate tax purposes, and the exercise or release, other than by disclaimer of any such power constitutes a gift for gift tax purposes.

Generation-skipping Transfer

Transfer of property, whether during life or at death and whether outright or in trust, to an individual two or more generations removed from the grantor.

Generation-skipping Transfer Tax

Levied on all generation skipping transfers to the extent that the cumulative value of all such transfers exceeds the generation skipping transfer tax exemption amount, currently $2,000,000. This tax is in addition to any gift or estate tax on the same amount.

Generation-skipping Transfer Tax Exemption

Cumulative value of all generation skipping transfers, currently $2,000,000, that may pass generation skipping transfer tax free. Aggregated over one's lifetime and at death, regardless of number of transfers or donees.

Generation-skipping Trust

Leaves money to beneficiary two or more generations removed from the grantor. Preserves the $2,000,000 generation-skipping tax exemption and avoids tax on bequests exceeding that amount.

Grantor

Individual who establishes a trust.

Gross Estate

All property and interests in property held by a decedent at death or otherwise imputed to the decedent under estate tax law. A decedent's gross estate is inventoried in the relevant schedules of his/her federal estate tax return as follows:

1. Real Estate
2. Stocks and Bonds
3. Mortgages, Notes, and Cash
4. Insurance on the Decedent's Life
5. Jointly Owned Property
6. Other Miscellaneous Property
7. Transfers During Decedent's Life
8. Powers of Appointment
9. Annuities

Total Gross Estate = Sum of the Above

Guardian

Person appointed by a court upon its finding of disability of another (ward) and granted the legal authority and legal responsibility to care for the ward. If a ward is unable to provide for his/her food, shelter, and health care, the appointment is as guardian of the person. If a ward is unable to provide for the management of his/her property or to resist fraud or undue influence in such management, the appointment of a guardian is of the estate. If the ward is disabled in both capacities, the appointment of a guardian is of both the person and estate. In some states, a guardian is the title of the person appointed only for a minor, in which case the person appointed to care for a disabled person who has attained the age of majority is known as a conservator. A guardian or conservator may be appointed who has limited duties that the court specifically finds are needed for the care of the ward, in which case, the appointee is known as a limited guardian or conservator.

Health Care Directive

Document containing a directive relating to the health care of the individual making the directive to take effect when that individual is no longer able to make decisions about his/her own health care. It generally often

• Specifies medical treatment the individual either desires to receive or refuses to receive
• Includes the appointment of another individual to make such decisions for the individual making the directive when he/she is unable to make such decisions for him/herself.

Heir

Person entitled to share, in whole or in part, any real property of an intestate decedent, now generally broadened to include all property of an intestate decedent.

Holographic Will

A will written entirely in the testator’s own handwriting, and that is not witnessed.

Inheritance

For probate purposes: Receipt of property from an intestate decedent, by right of succession rather than by will.

For community property characterization or estate tax purposes: receipt of property simply as a result of death.

Inheritance Tax

Levied on the right to receive property from a decedent.

Insurance Trust

A trust, generally irrevocable, with assets consisting entirely or primarily of life insurance contracts or proceeds.

Intestate

Without a valid will.

Irrevocable Gift

A gift that cannot be modified or revoked after it is made, resulting in the return of the property to the donor.

Irrevocable Trust

A trust that cannot be modified or revoked after its creation. Grantor permanently relinquishes ownership and control of property, usually as a gift to the trust.

Joint and Survivor

The right held by two or more individuals to receive property during a time in which any of them is alive.

Joint Tenancy

A form of ownership of jointly held property such that

• All co-owners have an equal right to use the property
• All co-owners have an equal ownership interest in the property
• Upon the death of any co-owner, his/her interest in the property passes to the surviving co-owners and ultimately to the last survivo
• Any attempt to transfer the property during life generally results in the joint tenancy's being converted as a matter of law to a tenancy in common

Joint Will

A single will made by two of more testators covering the passage of property of each testator at his/her respective death, resulting in the same will being offered for probate in more than one proceeding.

Jointly Held Property

Property concurrently owned by more than one person. Co-owners share an equal right to use the property. Each owner's fractional interest in the property and the results of his/her attempt to transfer that interest, however, depends on the form in which jointly held property is held.

Legacy

Testamentary gift of personal property, traditionally of money.

Letter of Instructions

Document that provides specific, detailed, personal instructions regarding any of the following that its maker considers relevant:

• List of professional advisors
• List of relatives
• Preferences and arrangements regarding organ donation, autopsy, funeral, and burial
• Location of safe deposit box and any other storage facility
• List of major current assets
• List of major current debts and other liabilities
• Location of recent tax returns
• Location of bills received, records of payment, and cancelled checks
• List of legal documents
• Description of any other relevant circumstances
• Desired disposition of tangible personal property to the extent not provided in a will or living trust.

Regarding tangible personal property, many states have statutes providing for the disposition at death of some types or all of an individual’s tangible personal property (generally not including property used in a trade or business) by a writing, specifying the item and its intended beneficiary and signed and dated by its maker, that does not have to be executed with the formality required of a will. In some states, these informal writings are binding as regards the disposition of specified property so long as it is not specifically given in one’s will and the will refers to the writing. In other states, these writings are discretionary with one’s personal representative.

Letters of Administration

Certificate of authority granted by a probate court stating that the person named has been appointed as administrator of an intestate decedent's estate and authorizing that person to administer the estate.

Letters of Administration with Will Annexed

Certificate of authority granted by a probate court stating that the person named has been appointed as administrator of an testate decedent's estate, though not nominated as executor in the will, and authorizing that person to administer the estate according to the terms of the will.

Letters Testamentary

Certificate of authority granted by a probate court stating that the person named has been appointed as executor of a testate decedent's will and authorizing that person to administer the estate according to the terms of the will.

Life Estate

A present interest in property of a duration equal to a specified individual's lifetime, usually of the individual who holds the present interest. If measured by the lifetime of a different individual, it is called a Life Estate Pur Autre Vie (life estate by another's life). If the interest is in trust, it is called a Life Interest.

Life Tenant

Individual who holds, or may in the future hold, a life estate in property. If the interest is in trust, the individual is known as a Life Beneficiary. For example, if a husband at death left his estate in trust for his wife for her life and upon her death to his children, the husband would be the grantor. His wife would hold a life interest and be the life beneficiary, and his children would hold a remainder interest and be the remainder beneficiaries.

Limited Power of Appointment

Restricted to appoint to a specific class of heirs. Person in possession of this power will not have it included in the holders' taxable estate.

Living Trust

A Revocable trust permitting grantor to be both trustee and beneficiary while alive. Grantor maintains control of the assets and receives all income and benefits. At death, a designated successor trustee distributes remaining assets according to terms of the trust, thereby avoiding the probate associated with a will. Should grantor become incapacitated during the term of the trust, designated successor or co-trustee can take over management.

Marital Deduction

Federal estate and gift tax deduction that allows qualifying gifts, at death or during life, to one's U.S.-citizen spouse to pass tax free.

Marital Deduction Gift

A gift to one's U.S.-citizen spouse, at death or during life, that qualifies for the federal estate or gift tax marital deduction and does not result in the imposition of federal estate or gift tax.

Marital Trust

A trust that is established for a surviving spouse and qualifies for the marital estate-tax deduction.

Minor

An individual who has not attained a specific age, generally either 18 or 21, set by state statute, at which time he/she is accorded full legal rights.

Net Estate Tax

Gross estate tax less applicable credit amount and any other applicable credits. One's net estate tax is one's estate tax liability.

Next of Kin

Historically, those persons entitled to share, in whole or in part, any personal property of an intestate decedent. Now generally broadened to include all property of an intestate decedent.

Non-probate Assets

Assets comprising a decedent’s non-probate estate. Non-probate assets include:

• Joint tenancy property (but not property held as a tenancy-in-common), which passes to surviving joint tenants
• Joint bank accounts with right of survivorship, which pass to the surviving joint tenants
• Payable-on-death bank accounts which pass to the designated payable-on-death beneficiaries
• Transferable-on-death securities and securities accounts, which pass to the designated transferable-on-death beneficiaries
• Property whose title decedent has transferred but whose possession decedent has retained until his/her death, which passes to the remainder beneficiaries according to the deed or other conveyance document
• Property decedent has transferred to a revocable living trust for his/her benefit, which continue to be held by the trust, now for the benefit of the successor beneficiaries
• Property subject to a community property agreement, which passes to decedent’s surviving spouse
• Life insurance policies on decedent’s life, whose proceeds pass to the designated beneficiaries
• Property held in decedent’s individual retirement accounts, which passes to the designated beneficiaries
• Property in decedent’s employee benefit plans, which passes to the designated beneficiaries

Non-probate Estate

Collection of non-probate assets held by a decedent that pass independent of his/her will.

Nuncupative Will

An unwritten will that is spoken by the testator during his/her last illness to at least two witnesses.

Omitted Heir

A spouse or child of a testator not named or provided for in a will. An omitted heir is usually entitled to receive from decedent's estate, despite the will, whatever he/she would have received as an heir had the testator died intestate.

Pecuniary Gift

A gift of money, by will or otherwise.

Per Capita Distribution

A distribution of property in equal shares to all its recipients.

Per Stirpes Distribution

Distribution of property that passes such that any property that would otherwise pass to a predeceased heir or beneficairy is distributed instead to his/her then living issue, equally if in the same generation.

Personal Property

All property that is not real property, generally either tangible personal property (having physical presence, such as cars, clothing, furniture, books, jewelry, etc.) or intangible personal property (representing an ownership right, such as notes of indebtedness or securities, and including a contract interest in real property, such as a lease).

Pick-up Tax

Estate tax imposed by some states, equal to the maximum allowable federal estate tax credit for estate taxes paid to a state. Pick-up tax is designed by a state's legislature to divert to decedent's resident state, at no effective cost to decedent, tax that would otherwise have been paid to the federal government.

Posthumous Heir

Heir conceived before, but born after, decedent's death.

Pour-over Will

A will in which the testator gives his/her residuary estate to the trustee of a trust, usually his/her revocable living trust.

Power of Appointment

Right held by one person to dispose of property owned by another.

Power of Attorney

Authority granted by one person (principal) to another (agent) to act for the principal. By law, the agent's authority terminates upon the subsequent disability or death of the principal. Document in which such authority is granted.

Precatory Language

Words of intent or desire having no legal effect.

Principal

Person who appoints an agent in a power of attorney.

Probate

The process used to make an orderly distribution and transfer of property from a decedent to beneficiaries. Characterized by court supervision of property transfer, filing of claims against the estate by creditors and publication of a last will and testament. The primary purpose of a probate proceeding is to prove before a competent judicial authority that an offered document is the valid will of a decedent.

Probate Assets

Assets comprising a decedent's probate estate.

Probate Estate

Collection of probate assets held by a decedent that pass according to the terms of his/her will or according the laws of intestate succession in the absence of a will. Generally those assets held in decedent’s name alone and, if married, held in the names of the couple as their community property and not subject to a community property agreement.

Q-TIP Trust

A trust:

• Made by a married grantor during life or in the will or living trust of a decedent married at death
• Established for the benefit of his/her then current or surviving U.S.-citizen spouse
• Is the recipient of the donor's or decedent's Q-TIP marital deduction gift and distributes, at least annually, all trust income to the then current or surviving spouse for life.

Qualified Domestic Trust (Q-DOT Trust)

A trust, similar to a Q-TIP trust, established for the benefit of a non-U.S. citizen spouse such that assets transferred to the trust qualify for the estate or gift tax marital deduction and will be subject to estate tax at that spouse's death.

Qualified Terminable Interest Property (Q-TIP)

Minimal interest in property that will qualify as a marital deduction gift if elected by the donor or the decedent's personal representative. As the donee of a QTIP gift, the spouse is required to receive all income from the property for life.

Quasi-Community Property

Property acquired by one or the other or both of husband and wife during marriage while in a separate property state that would have been community property had they acquired it while married in a community property state. Community property states generally treat quasi-community property as community property.

Real Property

Property consisting of land or permanently affixed to land and contained within or growing on land. Any interest in such property.

Reciprocal Wills

Two wills, executed separately by each of two testators, generally husband and wife, whose provisions mirror each other.

Remainder

Future interest in property held by someone other than the grantor and that follows either a life interest or a term of years.

Residence

Physical location of a person’s home or principal residence, although he/she may also have living quarters in another location. Legally, a person may have only one residence.

Residuary Beneficiary

The beneficiary of a decedent's residuary estate.

Residuary Estate

Assets of a decedent's estate that remain after payment of all debts, expenses, and taxes and the distribution of all specific and general gifts.

Revocable Trust

Grantor is owner of trust assets and is taxed on income earned. Grantor retains right to revoke or amend trust at any time. Government considers specified assets to still be part of grantor’s taxable estate. In some instances, heirs may have to pay estate taxes on assets after death of the grantor. Most revocable trusts become irrevocable at the death or disability of the founder.

Right of Survivorship

Upon death, property goes to survivor.

Self-administered Living Trust (SALT)

A revocable living trust for which the grantor is the trustee and makes his or her own investment decisions.

Separate Property

Property in community property states that is either brought to the marriage, or acquired during the marriage by gift or inheritance. Separate property is considered to be owned exclusively by its owner upon the marriage or by its donee following the marriage. The separate character of separate property is lost if separate property is commingled with community property. Separate property added to community property becomes community property itself.

Special Needs Trust

Manages resources for a disabled person while maintaining that person’s eligibility to receive public assistance benefits.

Special or Temporary Administrator

Administrator appointed to initiate management of a decedent's estate until the appointment of the personal representative. Typically appointed to perform an immediate act, such as to open a safe deposit box believed to contain a decedent's will or to collect and preserve decedent's assets and dispose of any that are perishable.

Specific Gift

A testamentary gift of a specified item in decedent's estate. If the item is not in the estate at decedent's death, the gift is adeemed, and the beneficiary takes nothing from it.

Spendthrift Trust

A trust that disallows the beneficiary from transferring his/her interest in the trust, and prevents the beneficiary's creditors from attaching the trust for payment of the beneficiary's debts.

Spousal Right of Election

A surviving spouse's right in common law states to elect to take a specified share of the decedent’s estate instead of under the will.

Springing Durable Power of Attorney

Power of attorney that takes effect upon the disability of the principal.

Tax Apportionment Clause

A clause in a will specifying the source of funds for the payment of decedent's estate tax. Generally of one of two types, either:

• Each gift pays it pro-rata share
• The residuary estate bears all estate tax liability

Tax Credit

Amount permitted to be deducted from the tax itself. For federal estate tax purposes:

• Applicable credit amount
• Credit for state death taxes,
• Credit for federal gift taxes
• Credit for foreign death taxes
• Credit for tax on prior transfers

Taxable Estate

Total gross estate less total allowable deductions. The estate tax is levied on one's taxable estate.

Tenancy by the Entirety

A form of ownership of jointly held property in common law states such that:

• Co-owners are a married couple
• Upon the death of either, his/her interest in the property passes to the surviving spouse.

Tenancy in Common

Form of ownership of jointly held property in which each co-owner:

• Has equal right to use property
• May hold a different fractional interest in property as regards ownership and transfer
• Has the right to transfer his/her share in the property during life and at death

Testament

Legal declaration naming one or more persons to manage one's estate and providing for the transfer of one's property at death, historically, of only one's personal property.

Testamentary Power of Appointment

Power of appointment that may be exercised only by a will.

Testamentary Trust

A trust created under the terms of a will that takes effect upon the death of the testator.

Testate

Having a valid will.

Testator

An individual who makes a will.

Totten Trust

Fiduciary relationship in which a person, called a trustee, holds title to property for the benefit of another person, called a beneficiary.

Trust

A three-part agreement in which a grantor transfers legal title to assets to a trustee for the purpose of benefiting one or more third parties (beneficiaries). A trust may be revocable or irrevocable and may be included in a will to take effect at time of death.

Trust administrator

A trust company employee who manages trust accounts.

Trustee

An individual or entity holding legal title to the assets of a trust, responsible for management of trust assets.

Undivided Interest

The interest in property held by each co-owner of jointly held property. Each tenant has equal right to use entire property and, unless an agreement to the contrary exists, is entitled to an income share proportional to his or her ownership interest. If the property is sold, proceeds are shared among tenants in proportion to their respective ownership shares, although unequal share ownership is not possible in a joint tenancy.

Uniform Gift to Minors Act / Uniform Transfers to Minors Act

A statutory method of holding property for the benefit of a minor.

Ward

Individual subject of a guardianship.

Wealth Replacement Trust

A trust designed to ensure that heirs receive the value of an estate, which could be depleted by federal estate tax or charitable gifts. Typically an irrevocable life insurance trust.

Will

Legal declaration naming one or more persons to manage one's estate and providing for transfer of one's property at death, historically, only of one's real property.

Will Substitute

Device used instead of a will to transfer property at death, such as a trust, community property agreement, life insurance policy, retirement plan, etc.

Witness

Individual, who, being physically present, personally perceives a relevant object or action that has legal significance and is able to testify in court as to his/her perception, or the act of such perceiving.