Estate Planning Terms Glossary

Below is a list of commonly used estate planning terms that one should know before planning an estate.

ADMINISTRATION: The management of a decedent’s estate including the payment of expenses, debts and obligations, and the general settling of the estate.

ANNUAL GIFT TAX EXCLUSION: Technique to allow gifts without the imposition of estate or gift taxes.

ADMINISTATOR: An individual or entity, such as a trust department, appointed by a court to settle the estate of a person who has died without leaving a valid will.

ALTERNATE BENEFICIARY: Person or organization named to receive your assets if the primary beneficiaries named in your Trust die before you.

ASSETS: Anything you own, including your home and other real estate, bank accounts, life insurance, investments, partnership interests, a business, furniture, jewelry, art, clothing, and collectibles.

BENEFICIARY: Person or entity entitled to receive benefits from a will, insurance policy, trust agreement or employee benefit plan.

BASIS: What you paid for the asset at the time of purchase.  The value is used to determine gain or loss for income tax purposes.

BY-PASS TRUST: Another name for the “B” part of an A-B living trust because the assets in this trust bypass federal estate tax.

CHARITABLE REMAINDER TRUST: This is an irrevocable trust with both income and remainder interest. Income is paid to designated beneficiaries for a term or lifetime. The remainder interest is paid to qualified organizations as specified in the trust document when the trust terminates.

CO-TRUSTEES: Two or more individuals who have been named to act together in managing a trust’s assets. A corporate trustee can also be a co-trustee.

CORPORATE TRUSTEE: An institution, like a bank or trust company that specializes in managing or administering trusts.

CODICIL: A written change or amendment to a Will.

COMMUNITY PROPERTY: Assets a husband and wife acquire by joint effort during marriage if they live in one of the eight community property states. Each spouse owns half of the assets in the event of divorce or death.

CONSERVATORSHIP: A court controlled program for persons who are unable to manage their own affairs due to a mental or physical incapacity.  May also be called a guardianship.

CONTEST:  To dispute or challenge the terms of a Will or trust.

CREDITOR: Person or institution to whom money is owed.

CREDIT SHELTER TRUST: Another name for the B Trust in an A-B living trust because this trust “shelters” or preserves the federal estate tax credit of the deceased spouse.

CUSTODIAN: Person named to manage assets left to a minor under the uniform Transfer to Minors Act.  In most states, the minor receives the assets at legal age.

DECEASED: One who has died.

DEED: A document that allows you to transfer title of your real estate to another person(s).

DISCLAIM:  To refuse to accept a gift or inheritance so it can go to the recipient who is next in line.

DISCRETION: The full or partial power to make a decision or judgment.

DISINHERIT: To prevent someone from inheriting from you.

DISTRIBUTION: Payment in cash or assets(s) to one who is entitled to receive it.

DURABLE POWER OF ATTORNEY: A power of attorney that will come into effect and remain in effect and valid if the person who grants the power becomes incapacitated. This person will have the authority to make health care decisions for you.  This person is also called a health care proxy or medical power of attorney.  A power of attorney gives another person full or limited legal authority to sign your name on your behalf in your absence for asset management. It is valid through incapacity and ends at death.

ESTATE: The real and personal property of a decedent; a specific interest in property.

ESTATE TAXES: Federal or state taxes on the value of the assets left at death.  This is also called inheritance or death taxes.

EXECUTOR: Person or institution named in a Will to carry out its instructions. Female is executrix.  This person is also called a personal representative.

FAMILY BUSINESS DEDUCTION: An additional federal estate tax exemption or family-owned businesses and farms that qualify.  When added to the individual federal estate tax exemption, the maximum amount exempt from federal estate taxes is $1.3 million.

FEDERAL ESTATE TAX EXEMPTION: Amount of an individual’s estate that is exempt from federal estate taxes.  $3.5 million in 2009, 2010 disappears and scheduled to reappear 2011 at $1 million.

FIDUCIARY: An individual or entity in position of trust who has accepted the duty of acting for the benefit of another.

FUNDING:  Is the process that entails the transfer of assets you own as an individual into the name of your Trust.

FRACTIONAL INTEREST GIFT: Allows a donor to transfer partial interests in real property to donees and obtain a fractional interest discount for estate and gift tax purposes.

GAIN: The difference between what you receive for an asset when it is sold and what you paid for it. Used to determine the amount of capital gains tax due.

GRANTOR/SETTLOR: A person who transfers property, the creator of a trust.

GENERATION SKIPPING TAX: This is a tax that is levied on assets that are given to individuals who are more than one generation away from the donor.  An example would be a grandparent giving an asset to a grandchild either during life or at death. 

GROSS ESTATE:  The value of an estate before debts are paid.

HEIR: One who is entitled by law to receive part of your estate.

HOMESTEAD EXEMPTION:  Portion of your residence (dwelling and or surrounding land) that cannot be sold to satisfy a creditor’s claim while you are living.

INCAPACITATED/INCOMPETENT:  Unable to manage one’s own affairs, either temporarily or permanently and therefore has a lack of legal power.

INHERITANCE: The assets received from someone who has died.

IRREVOCABLE LIFE INSURANCE TRUST: Typically used to shelter an insurance death benefit from estate taxes and may provide liquidity to pay estate taxes and settlement costs. A trust is created, and then the trust purchases and owns a life insurance policy. Upon death, the insurance proceeds are paid out in accordance with the terms of the trust.

IRREVOCABLE TRUST: A trust that, by its terms, cannot be revoked or cancelled by the grantor once established.

INTESTATE: When an individual is without a Will.

JOINT TENANCY:  When property is held in joint tenancy with rights of survivorship by two or more people, upon the death of one of those owners, all of his or her interests are transferred to the surviving owners.

LIMITED LIABILITY ENTITY: (LLC’s) Entity frequently used by many businesses and or families to help manage and protect assets.

LIQUID ASSETS: Cash and other assets (stocks) that can easily be converted into cash.

LIVING TRUST: A trust that is operative during the lifetime of the grantor; as opposed to a trust under Will or a testamentary trust. Also known as an inter-vivos trust.

LIVING WILL: A written document that states you do not wish to be kept alive by artificial means when the illness or injury is terminal.

MARITAL DEDUCTION:  A deduction on the federal estate tax return that lets the first spouse to die leave an unlimited amount of assets to the surviving spouse free of estate taxes. However, if no other tax planning is used, and the surviving spouse’s estate is more than the amount of the federal estate tax exemption in effect at the time of his/her death, estate taxes will be due at that time.

MEDICAID: A federal-funded health care program for the poor and minor children, co-administered by the states and federal government.

MEDICARE: A federal-funded health care program, primarily for Americans over age 65 who are covered by Social Security or Railroad Retirement Benefits.

MINOR: One who is under the legal age for an adult, which varies by state (usually 18 or 21).

NET ESTATE:  The value of an estate after all debts have been paid.  (Federal estate taxes are based on the net value of an estate).

NET VALUE: The current market value of an asset less any loan or debt.

PER STIRPES: A way of distributing your estate so that your surviving descendants will receive only what their immediate ancestor would have received if him/her had been living at your death.

PERSONAL PROPERTY: Movable property.  This includes furniture, automobiles, equipments, cash and stocks. It is the opposite of land.

PERSONAL REPRESENTATIVE: Another name for executor or administrator.

POUR OVER WILL: A short Will often used with a living trust.  It states that any assets left out of your living trust will become part of your living trust upon your death.

PROBATE: The legal process of validating a Will, paying debts, and distributing assets after death.

PROBATE ESTATE:  The assets that go through probate after you die.  Usually this includes assets you own in your name and those paid to your estate. Usually does not include assets owned jointly, payable-on-death accounts, insurance and other assets with beneficiary designations.  Assets in a trust do not go through probate.

PROBATE FEES:  Legal, executor, and appraisal fees and court costs when an estate goes through probate.  Probate fees are paid from assets in the estate before the assets are fully distributed to the heirs.

QUALIFIED DOMESTIC TRUST (QDOT): Allows a non-citizen spouse to qualify for the estate marital deduction.

POWER OF ATTORNEY: A legal document appointing someone to act as one’s agent with legal authority to sign your name, on your behalf, in your absence. Power of Attorney ends at incapacity (unless it is a durable power of attorney) or death.

HEALTH CARE POWER OF ATTORNEY: A legal document appointing someone to act as one’s agent to make health care decisions for you should you become incapacitated.

IRREVOCABLE LIFE INSURANCE TRUST: A trust used to prevent estate taxes on insurance proceeds received at the death of an insured.

PRIVATE FOUNDATION: An entity used by high net worth families and clients to receive any otherwise taxable property so at to eliminate estate taxes on the death of a surviving spouse.

REAL PROPERTY:  Land and property that is permanently attached to land (like a building or house).

RECORDED DEED:  A deed that has been filed with the county land records.  This creates a public record of all changes in ownership or property in the state.

REQUIRED MINIMUM DISTRIBUTION RMD: The amount you are required to withdraw each year from your tax-deferred plan after you reach your required beginning date.

REMAINDER MAN: The person who is entitled to an estate after the prior estate has expired.

REVOCABLE TRUST: A trust that by its terms may be terminated by the settlor or by another person.

SEPARATE PROPERTY: Generally, all assets you acquire prior to marriage and assets acquired by gift inheritance during marriage.

SETTLE AN ESTATE: The process of handling the final affairs (valuation of assets, payment of debts and taxes, distribution of assets to beneficiaries) after someone dies.

SETTLOR:  Grantor.

SPECIAL NEEDS TRUST: Allows you to provide for a disabled love one without impairing their access to government benefits.

SPENDTHRIFT CLAUSE: Protects assets in a trust from a beneficiary’s creditors.

SPOUSE: Husband or wife.

STEPPED-UP BASIS: Assets are given a new basis when transferred by inheritance (through a Will or trust) and are re-evaluated as of the date of the owner’s death.

SUCCESSOR TRUSTEE: Person or institution named in the trust document that will take over should the first trustee die, resign or otherwise become unable to act.

SURVIVING SPOUSE: The spouse who is living after one spouse has died.

STEP-UP IN BASIS: A step up or down in basis is an adjustment for tax purposes to an asset’s fair market value at the date of death of the owner of the asset.

TAX-DEFERRED PLAN: A retirement savings plan (like IRA, 401K, pension, profit sharing, or Keogh) that qualifies for special income tax treatment.  The contributions made to the plan and subsequent appreciation of the assets are not taxed until they are withdrawn at a later time, ideally, at retirement, when your income and tax rate are lower.

TAXABLE GIFT: Generally, a gift of more than $11,000 in one year to someone than your spouse.  The value of the gift is applied to your federal gift and estate tax exemption, and no gift tax is required to be paid until the exemption has been exhausted.  (The gift is tied to inflation).

TENANTS-IN-COMMON: A form of joint ownership in which two or more persons own the same property.  At the death of a tenant-in-common, his or her share transfers to his or her heirs.

TENANTS-BY-THE-ENTIRETY: A form of joint ownership in some states between husband and wife.  When one spouse dies, his or her share of the asset automatically transfers to the surviving spouse.

TESTAMENTARY TRUST: A trust in a Will. Does not take effect until death and does not avoid probate.

TESTATE: One who dies with a Will.

TITLE: A document proving ownership of an asset.

TRANSFER TAX:  A tax on assets when they are transferred to another.  The estate tax, gift tax, and generation skipping tax are all considered transfer taxes.

TRUST: An entity that holds assets for the benefit of certain other persons or entities.

TRUSTEE: Person or institution that manages and distributes another’s assets according to the instructions in the trust document.

TRUST COMPANY: An institution that specializes in managing or administering trusts.  This is also called a corporate trustee.

TRUST PROTECTOR: A trust protector is a person who has the ability to remove and replace trustees and make certain changes to a trust agreement.  A trust protector cannot be a beneficiary of a trust or a financial advisor.

UNIFIED CREDIT: The amount each person is allowed to deduct from any federal estate taxes owed after death.  Also called the Applicable Exclusion Amount.

UNFUNDED: Your living trust is unfunded if you have not transferred assets into it.

LIVING WILL: Sometimes referred to as a physician’s directive, it is a legal document in which you give directions for life sustaining treatment should you become unable to communicate your wishes.  Maryland law has combined this into the advanced medical directive.

WILL: A written document with instructions for the distribution of an individual’s assets after death.

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