Estate Planning Terminology
The surviving spouse’s portion of an A-B trust. Also called marital deduction trust or survivor’s trust.
The two “sub-trusts” created when a person dies, one of which – the “A” Trust – will be maintained for the benefit of the surviving spouse – and the other of which – the “B” Trust – will contain assets of a value equal to the deceased spouse’s remaining estate tax exclusion amount. The B-Trust, sometimes referred to as the “By-Pass Trust” or the “Credit Shelter Trust”, will also be held for the benefit of the surviving spouse during his or her lifetime, but upon the death of the surviving spouse, will pass to the children (or other beneficiaries) without any additional estate tax, irrespective of the value of the B-Trust at that point.
This can save a substantial amount in estate taxes and leave more money for your beneficiaries. For example, in 2018, when the federal estate tax exemption is $11.2 million, an A-B trust will let a married couple transfer up to $22.4 million to their beneficiaries estate tax- free.
Under prior law, only the decedent could use his or her estate tax exemption, so it was important to create the B Trust in order to earmark this exemption. Since the concept of portability is now part of the law, not everyone will need the complexity of the A-B trust structure in order to take advantage of his or her estate tax exemption. Portability allows the surviving spouse to use the unused estate tax exemption of the first spouse to die.
The court-supervised process during which the executor or personal representative collects the decedent’s assets, pays all debts and claims, and distributes the residue of the estate according to the will or the state law intestacy rules (when there is no will).
The individual or corporate fiduciary appointed by the Probate Court to manage the probate estate where no executor has been designated, or where the designated executor is unable or unwilling to serve. Female is administratrix. Also called personal representative.
Advance Medical Directive
The legal instrument in which a person nominates another to make medical decisions when one is unable to do so, and also expresses the person’s wishes as to the extent of “extraordinary” medical care desired in case of imminent death from an irreversible condition, or in the case of a persistent vegetative state. The Advance Medical Directive includes both a “living will” and a “durable power of attorney for health care decisions”.
Person or organization named to receive your assets if the primary beneficiaries named in your Trust die before you do.
An additional probate in another state. Typically required when you own real estate in another state that is not titled in the name of your trust.
Amount you can give someone each year without having to file a gift tax return or pay a gift tax. Currently $15,000 per recipient ($30,000 if married). The amount of tax-free gifts is tied to inflation and may increase from time to time. Payments made directly to providers of education or medical care services also are tax-free and do not count against the annual exclusion or gift tax exemption amounts.
Applicable Exclusion Amount
Another name for the estate tax exemption amount (formerly called the unified credit), which shelters a certain value of assets from the federal estate and gift tax. This amount is $5 million and is inflation adjusted annually.
A standard, usually relating to an individual’s health, education, support, or maintenance, that defines the permissible reasons for making a distribution from a trust. Use of an ascertainable standard prevents distributions from being included in a trustee/beneficiary’s gross estate for federal estate tax purposes. Depending on state law, the use of an ascertainable standard may provide less protection for a beneficiary from creditors.
Basically, anything you own, including your home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
A short document that transfers your interest in assets from your name to another. Often used when transferring assets to a trust.
The person appointed under a Power of Attorney to conduct the affairs and deal with the property of another. The attorney-in-fact need not be a lawyer; any competent adult individual may serve. Under many recent state statutes, the term “Attorney-In-Fact” has been replaced by the term “Agent” under the Uniform Powers of Attorney Act.
The deceased spouse’s portion of an A-B trust. Also called credit shelter or bypass trust.
What you paid for an asset. The value that is used to determine gain or loss for income tax purposes.
In a living trust, the persons and/or organizations who receive the trust assets (or benefit from the trust assets) after the death of the trust grantor.
The Trust created to hold assets of a value equal to the decedent’s estate tax exclusion amount on such terms that those assets will “by-pass” further estate taxes when the initial beneficiary of the Trust dies. (Same as “Credit Shelter Trust” and “B-Trust”.) This type of trust will not be as important for tax planning in light of the concept of portability in the estate tax law, but such a trust still will be valuable for many non-tax planning considerations. If you reside in a state with a lower estate tax exemption than federal estate tax law provides, you may need to modify the terms of any bypass trust to address that lesser amount.
The legal competence to effectively perform a given act (e.g. to write a Will or Trust, to enter into a binding contract).
Certificate of Trust
A shortened version of a trust that verifies the trust’s existence, explains the powers given to the trustee, and identifies the successor trustee(s). Does not reveal any information about the trust assets, beneficiaries, or their inheritances.
Charitable Lead Trust
A trust created during lifetime or at death that distributes an annuity or unitrust amount to a named charity for life or a term of years, with any remaining trust assets passing to designated non-charitable beneficiaries upon termination of the trust.
Charitable Remainder Trust
A tax-exempt trust created during lifetime or at death that distributes an annuity or unitrust amount to one or more designated non-charitable beneficiaries for life or a term of years, with the remaining trust assets passing to charity upon termination of the trust. If appreciated assets are transferred to a charitable remainder trust and sold by the trust, the trust does not pay capital gains tax. Instead, the non-charitable beneficiaries are taxed on a portion of the capital gains as they receive their annual distributions and, in this manner, the capital gains tax is deferred.
A trust included in your living trust. If, when you die, a beneficiary is not of legal age, the child’s inheritance will go into this trust. The inheritance will be managed by the trustee you have named until the child reaches the age at which you want him/her to inherit.
A formally executed document that amends the terms of a will so that a complete rewriting of the will is not necessary.
Two or more persons who establish one living trust together.
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.
One living trust established by two or more individuals (usually a married couple).
Assets a husband and wife acquire by joint effort during marriage if they live in one of the nine community property states. (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.) Alaska is an opt-in community property state that gives the parties the option to make their property community property. Each spouse owns half of the assets in the event of divorce or death.
One who is legally responsible for the care and well-being of another person. If appointed by a court, the conservator is under the court’s supervision. May also be called a guardian. (Duties and titles can vary by state. For example, in Missouri, there is a guardian of the person and a conservator of the estate.)
A court-controlled program for persons who are unable to manage their own affairs due to mental or physical incapacity. May also be called a guardianship.
To challenge or dispute the terms of a will or trust.
An institution, generally a bank or trust company, that specializes in managing trusts.
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.
Person or institution to whom money is owed.
An irrevocable Trust established to qualify contributions for the annual federal gift tax exclusion (currently $15,000) for gifts of a present interest. Named for the first person to use such a structure because the Trust contains “Crummey Powers”, enabling a beneficiary to withdraw assets contributed to the Trust for a limited period of time.
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.
One who has died.
A document that lets you transfer title of your real estate to another person(s). Also see warranty deed and quitclaim deed.
An individual’s children, grandchildren, and more remote persons who are related by blood or because of legal adoption. An individual’s spouse, stepchildren, parents, grandparents, brothers, or sisters are not included. The term “descendants” and “issue” have the same meaning.
An individual beneficiary of a retirement account (IRA, 401(k), 403(b), etc.) who qualifies as a person whose life expectancy may be used for determining required minimum annual distributions. The term “designated beneficiary” is a term of art under the I.R.S. regulations, one of which requires that to qualify as such the beneficiary must be an individual with an ascertainable life expectancy. Thus, for example, a charitable organization cannot qualify as a “designated beneficiary”.
The term “digital assets” means, files, including but not limited to, emails, documents, images, audio, video, and similar digital files which exist or may exist in the future, such comparable items, stored on digital devices, including, desktops, laptops, tablets, peripherals, storage devices, mobile telephones, smartphones, and any similar digital device which exists or may exist in the future or comparable items, regardless of the ownership of the physical device upon which the digital asset is stored.
To refuse to accept a gift or inheritance so it can go to the recipient who is next in line.
The renunciation or refusal to accept a gift or bequest or the receipt of insurance proceeds, retirement benefits, and the like under a beneficiary designation in order to allow the property to pass to alternate takers. To be a qualified disclaimer and thereby not treated as a gift by the disclaimant (the person who makes the disclaimer), the disclaimer must be made within nine months and before the disclaimant has accepted any interest in the property in order to avoid a tax triggering event. In light of the current high gift and estate tax exemption amounts, it may be feasible in many instances to disclaim even after that time period to accomplish non-tax goals. State laws addressing disclaimer may differ, and some wills and trusts might include express provisions governing what happens to assets or interests that are disclaimed. Be certain to consider all these issues before disclaiming.
A trust (set of instructions) established to receive, then manage and distribute, assets that would otherwise have been distributed to a prior beneficiary had that prior beneficiary not declined to accept (disclaimed) such assets.
The full or partial power to make a decision or judgment.
To prevent someone from inheriting from you.
Payment in cash or asset(s) to one who is entitled to receive it.
Durable Power of Attorney for Asset Management
A legal document that gives another person full or limited legal authority to sign your name on your behalf in your absence. Valid through incapacity. Ends at death.
Durable Power of Attorney for Health Care
A legal document that lets you give someone else the authority to make health care decisions for you in the event you are unable to make them for yourself. Also called a health care proxy or medical power of attorney.
The current market value of an asset less any loan or liability.
Beneficial ownership of an asset; the right to use, spend, consume and/or enjoy an asset or its income.
Assets and debts left by an individual at death.
The process of arranging one’s property and affairs so as to insure their current management and ultimate disposition in the most efficient, effective, economical, and private manner, taking into consideration the effect of state and federal tax and administrative laws and regulations.
Tax imposed by U.S. government and some states on the transfer of property from a decedent to his or her heirs or beneficiaries. The estate tax is levied on and measured by the size of the decedent’s estate, rather than on the amount received by any particular beneficiary. An estate tax is to be contrasted with an inheritance tax imposed by certain states on a beneficiary’s receipt of property.
The new term “applicable exclusion amount” used by the Internal Revenue Code to identify the value of assets owned by a decedent effectively exempt from the federal estate tax. For deaths occurring in 2021, the applicable exclusion amount is $11,700,000.
Old term for applicable exclusion amount. (See above.)
Person or institution named in a Will and thereafter appointed by the Probate Court to manage and distribute a decedent’s estate in accordance with the terms of the Will. May also be referred to as a Personal Representative.
An arrangement to coordinate the legal, tax, and other needs of one or more families, either through a true office staffed with employees or through outsourcing to the family’s regular advisors. Frequently, a family’s private trust company serves as the family office.
A Trust established to benefit one’s spouse, children and/or other family members. Often used in reference to the By-Pass Trust discussed above.
Federal Estate Tax Exemption
Amount of an individual’s estate that is exempt from federal estate taxes. In 2021, the exemption is $11,700,000.
An individual or a bank or trust company designated to manage money or property for beneficiaries and required to exercise the standard of care set forth in the governing document under which the fiduciary acts and state law. Fiduciaries include executors and trustees.
A serious responsibility of trust imposed upon one by the law, requiring the utmost degree of integrity and prudence in dealing with the property entrusted to the fiduciary (e.g. Trustee, Administrator, Executor, Guardian, Conservator, Agent).
The less than 100% share of ownership held by a co-owner of an asset.
Funding A Trust
Re-registering legal title to one’s assets in the name of the Trustee of the Trust.
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.
Generation Skipping Transfer Tax (GSTT)
A 40% federal tax designed to prevent people from being able to avoid paying estate taxes by making gifts or transfers in trust directly to grandchildren or great-grandchildren instead of passing them on to each generation. The GST tax is also applied when a transfer is made to a non-relative with at least a 37.5 year age difference. The GST exemption amount is 11.7 million in 2021 through 2025 and is inflation indexed.
A transfer from one individual to another without fair compensation.
A federal tax on gifts made while you are living. Currently $15,000 per person per year is exempt from gift tax. Also see “Annual Exclusion.” Only the State of Connecticut imposes a separate state gift tax
An Irrevocable Trust established to act as the repository of gifts to its beneficiaries, drafted such that the gifts to the Trust will be excluded from the donor’s taxable estate at death. (See “Crummey Trust”.)
A person, including a testator, who creates, or contributes property to, a trust. If more than one person creates or contributes property to a trust, each person is a grantor with respect to the portion of the trust property attributable to that person’s contribution except to the extent another person has the power to revoke or withdraw that portion. The grantor is also sometimes referred to as the “settlor,” the “trustor,” the “trustmaker” or the “donor.” Contrast with the use of the term “grantor trust” to imply a trust the income of which is taxed to the person considered the “grantor” for income tax purposes.
A trust over which the grantor retains certain control such that the trust is disregarded for federal (and frequently state) income tax purposes, and the grantor is taxed individually on the trust’s income and pays the income taxes that otherwise would be payable by the trust or its beneficiaries. Such tax payments are not treated as gifts by the grantor to the trust or its beneficiaries. Provided the grantor does not retain certain powers or benefits, such as a life estate in the trust or the power to revoke the trust, the trust will not be included in the grantor’s estate for federal estate tax purposes. Contrast with the non-tax reference to a person who forms or makes gifts to a trust as the “grantor.”
The value of an estate before debts are paid.
The federal tax exclusion that allows a certain value of generation-skipping transfers to be made without the imposition of a generation-skipping tax. The GST exemption amount is $11.7 million in 2021).
An individual or bank or trust company appointed by a court to act for a minor or incapacitated person (the “ward”). A guardian of the person is empowered to make personal decisions for the ward. A guardian of the property (also called a “committee”) manages the property of the ward.
Court proceeding initiated to supervise management of the personal affairs (e.g. living accommodations, nursing home selection) of a minor or an incapacitated person. In some states the term “guardianship” also refers to the procedure used to manage property and legal affairs of such a person. (Referred to in some states, as a “Conservatorship.”)
Health Care Power of Attorney
A document that appoints an individual (an “agent”) to make health care decisions when the grantor of the power is incapacitated. Also referred to as a “health care proxy.”
Health Care Proxy
See “Durable Power of Attorney for Health Care.” or “Health Care Power of Attorney” above.
The person entitled to distribution of an asset or property interest under applicable state law, in the absence of a Will or Trust. (Note that “heir” and “beneficiary” are not synonymous, though they may, in a particular case, refer to the same individual.) Your heirs are the ones who will inherit your property if you die with no valid Will or Trust in effect.
A handwritten will.
Portion of your residence (dwelling and surrounding land) that cannot be sold to satisfy a creditor’s claim while you are living.
Unable to manage one’s own affairs, either temporarily or permanently. Lack of legal power.
The earnings from principal, such as interest, rent, and cash dividends. This is a fiduciary trust accounting concept and is not the same as taxable income for income tax purposes.
A form of probate available in many states. Intended to simplify the probate process by requiring fewer court appearances and less court supervision.
The assets received from someone who has died.
Tax imposed by some states on the amount received by a particular heir or beneficiary.
An irrevocable Trust established to own life insurance on a person, so designed as to exclude the proceeds of the policy – the death benefit – from the insured person’s taxable estate at death.
Interest of a Beneficiary
The right to receive income or principal provided in the terms of a trust or will.
Latin term that means “between the living.” An inter vivos trust is created while you are living instead of after you die. A revocable living trust is an inter vivos trust.
Dying without leaving a valid Will or Trust in effect, such that the decedent’s estate is distributed in accordance with state law. (See “Heir” above.)
A list of the assets of a decedent or trust that is filed with the court.
Individual Retirement Account (see “Retirement Accounts).
A Trust that cannot be revoked, modified or amended (except to a very limited extent) once it has been established. Irrevocable Trusts are often used in tax planning to get property “out” of a person’s taxable estate so that it will not be subject to estate tax upon his or her death. As modern trust law continues to evolve, however, it may be possible to effect changes to irrevocable trusts through court actions or a process called decanting, which allows the assets of an existing irrevocable trust to be transferred to a new trust with different provisions. Opposite of revocable trust.
A form of ownership in which two or more persons own the same asset together. Types of joint ownership include joint tenants with right of survivorship, tenants in common, and tenants by the entirety.
Joint Tenants with Right of Survivorship
A form of joint ownership in which the deceased owner’s share automatically and immediately transfers to the surviving joint tenant(s). Abbreviated JTROS.
Often used for privacy. Title is transferred to a corporate trustee or corporation, but you keep control over how the property is managed. Because the title is in the name of the corporate trustee or corporation, no one knows the property belongs to you. In all financial transactions and dealings, your personal name never comes up. Also called a title holding trust.
“Registered ownership” of an asset. Refers to the person(s) whose name is on the deed, signature card, registration certificate, etc.
An individual who receives income or principal from a trust or similar arrangement for the duration of his or her lifetime.
The interest in property owned by a life beneficiary (also called life tenant) with the legal right under state law to use the property for his or her lifetime, after which title fully vests in the remainderman (the person named in the deed, trust agreement, or other legal document as being the ultimate owner when the life estate ends).
Cash and other assets (like stocks) that can easily be converted into cash.
The court-supervised process of managing the assets of one who is incapacitated.
A written legal document that creates an entity to which you transfer ownership of your assets. Contains your instructions for managing your assets during your lifetime and for their distribution upon your incapacity or death. Avoids probate at death and court control of assets at incapacity. Also called a revocable inter vivos trust. A trust created during one’s lifetime.
Living Will/Advance Directive
A written document that states your wishes with respect to being kept alive by artificial means when the illness or injury is terminal. (See Advance Medical Directive above.)
A deduction on the federal estate tax return that permits the first spouse to die leave an unlimited amount of assets to the U.S. citizen 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. (See QDOT below with respect to non-U.S. citizen spouses.)
Marital Trust. See “A Trust.”
A trust established to hold property for a surviving spouse in A-B trust planning and designed to qualify for the marital deduction. A commonly used marital trust is a qualified terminable interest property trust, or QTIP trust, which requires that all income must be paid to the surviving spouse.
A federally-funded health care program for the poor and minor children.
A federally-funded health care program, primarily for Americans over age 65 who are covered by Social Security or Railroad Retirement benefits.
One who is under the legal age for an adult, which varies by state (usually age 18 or 21).
The value of an estate after all debts have been paid. (Federal estate taxes are based on the net value of an estate.)
The current market value of an asset less any loan or debt.
An individual who is neither a resident nor a citizen of the United States. A non-resident alien nonetheless may be subject to federal estate tax or probate with regard to certain assets located in the United States. An estate tax treaty between that individual’s home country and the United States may affect this result.
A provision in a will or trust agreement that provides that someone who sues to receive more from the estate or trust or overturn the governing document will lose any inheritance rights he or she has. These clauses are not permissible in all instances or in all states.
Operation of Law
The way some assets will pass at your death, based on state law or the titling (ownership) of the asset, rather than under the terms of your will.
Payable-on-Death Account (POD)
A bank account titled in the name of the original owner but directing distribution to a named beneficiary upon the owner’s death. POD accounts avoid probate administration. See (Totten Trust below.)
A way of distributing your estate so that your surviving descendants will share equally, regardless of their generation.
A way of distributing your estate so that your surviving descendants will receive only what their immediate ancestor would have received if he/she had been living at your death.
Movable property. Includes furniture, automobiles, equipment, cash and stocks. Opposite of real property that is permanent (like land).
Another name for an executor or administrator.
A short Will used in conjunction with a Revocable Living Trust to dispose of any property owned by the decedent at time of death which was not transferred to the Trust during the Trustor’s lifetime. The Pour-Over Will also revokes all prior Wills, but unlike traditional Wills it does not contain detailed dispositive provisions; rather it directs distribution of all individually owned property of the Testator to the Trustee of his/her Trust. The Trust instrument contains detailed instructions relating to the distribution of the property. Like all Wills, a Pour-Over Will is subject to probate administration. A short will often used in conjunction with a living trust.
Power of Appointment
A power given to an individual (usually a beneficiary) under the terms of a trust to appoint property to certain persons upon termination of that individual’s interest in the trust or other specified circumstances. The individual given the power is usually referred to as a “holder” of the power. The power of appointment may be general, allowing the property to be appointed to anyone, including the holder, or limited, allowing the property to be distributed to a specified group or to anyone other than the holder. Property subject to a general power of appointment is includible in the holder’s gross estate for federal estate tax purposes.
Power of Attorney
A legal instrument whereby one appoints and empowers another person as agent to deal with one’s property and affairs. (See Attorney-in-Fact above). A General Power of Attorney is one which gives the Attorney-in-Fact broad, plenary powers; a Special Power-of-Attorney limits the Attorney-in-Fact’s authority to a particular property or transaction. A Durable Power-of-Attorney is one which remains effective even after the maker becomes incapacitated. Most comprehensive estate plans include a General Durable Power-of-Attorney.
Power of Withdrawal
A presently exercisable power in favor of the power holder other than a power exercisable in a fiduciary capacity limited by an ascertainable standard, or which is exercisable by another person only upon consent of the trustee or a person holding an adverse interest in the trust.
To be eligible for the annual $15,000 exclusion from the Federal Gift Tax, the gift must be of a “present interest”. In other words, the gift must belong to the donee with “no strings attached.” (However, see “Crummey Trust” above.)
The property (such as money, stock, and real estate) contributed to or otherwise acquired by a trust to generate income and to be used for the benefit of trust beneficiaries according to the trust’s terms. Also referred to as trust corpus.
Private Trust Company
An entity formed by a family to serve as fiduciary for the estates and trusts of extended family members. Often referred to as a family trust company.
The process, usually administered by a probate court or an official subject to the court’s authority, established in all fifty states to supervise the transfer of legal title to property from a decedent to his heirs or beneficiaries, or to supervise the management of the property and affairs of one incapable of handling his or her own affairs.
The assets that go through probate after you die. Usually these include 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 also do not go through probate.
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.
Anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein.
Prudent Man Rule
A legal principle requiring a trustee to manage the trust property with the same care that a prudent, honest, intelligent, and diligent person would use to handle the property under the same circumstances. See Prudent Investor Act.
Prudent Investor Act
A law that provides for how fiduciaries must invest trust, estate and other assets they hold in a fiduciary capacity, such as a trustee or executor.
Qualified Domestic Trust (QDOT)
A marital Trust used for the benefit of a non-U.S. citizen spouse containing special provisions specified by the Internal Revenue Code such that transfers to the QDOT qualify for a limited estate tax marital deduction, until they are actually withdrawn from the Trust.
Qualified Personal Residence Trust (QPRT)
An Irrevocable Trust established to hold title to residential property. The owner transfers ownership of the house to the Trust, retaining the right to reside in the home rent-free for a period of years. Used to reduce the transfer tax cost of leaving a residence to one’s beneficiaries.
Qualified Terminable Interest Property (QTIP)
A trust that delays estate taxes until your surviving spouse dies so more income will be available to provide for your spouse during his/her lifetime. You can also keep control over who will receive these assets after your spouse dies.
Qualifying Subchapter S Trust (QSST)
Trust that meets certain IRS qualifications and is allowed to own Subchapter S stock.
Document that allows you to transfer title to real estate. With a quitclaim deed, the person transferring the title makes no guarantees, but transfers all his/her interest in the property.
Land and property that is permanently attached to land (like a building or a house).
A deed that has been filed with the county land records. This creates a public record of all changes in ownership of property in the state.
An interest in property owned by the remainderman that does not become possessory until the expiration of an intervening income interest, life estate or term of years.
Required Beginning Date (RBD)
The date you must begin taking required minimum distributions from your tax-deferred plans. Usually, it is December 31 of the calendar year in which you turn age 72. If your money is in a company-sponsored plan, you may be able to delay your RBD beyond this date if you continue working (providing you are not a 5% or greater owner of the company).
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. This amount is determined by dividing the year-end value of your tax-deferred account by a life expectancy divisor found on a chart provided by the IRS.
The property remaining in a decedent’s estate after payment of the estate’s debts, taxes, and expenses and after all specific gifts of property and sums of money have been distributed as directed by the will. Also called the residuary estate.
Any of the various accounts, funds or plans established to provide retirement benefits for an individual, created pursuant to federal law and regulations and providing for tax-deferred accumulation during the life of the account, including IRAs, 401(k)s, 403(b)s, Pension and Profit Sharing Plans, etc. These accounts, with the exception of “Roth IRA’s,” are subject to income tax upon withdrawal. They (including Roth IRA’s) are also includable in the estate of the owner for Estate Tax purposes.
A Trust established by an individual, or a married couple, that becomes effective immediately upon establishment while the Trustor is still alive (thus “Living”), remains revocable and amendable during the lifetime of the Trustor (thus “Revocable”), and is used to (1) avoid probate; (2) facilitate some tax planning; (3) provide for management during periods of incapacity without need for guardianship or conservatorship; (4) address family circumstances; and (5) provide for ultimate distribution of the estate. The Trust is a comprehensive set of instructions for the management and ultimate distribution of the property, accounts and other assets you own. Opposite of irrevocable trust.
A special form of IRA for which the owner receives no income tax deduction for contributions, but the account does accumulate tax-deferred. Most significantly, withdrawals from the Roth IRA are not subject to income taxation.
A corporation that has made a Subchapter S election to be taxed as a pass-through entity (much like a partnership). Certain trusts are permitted to be shareholders only if they make the appropriate elections.
Personally benefiting from a financial transaction carried out on behalf of a trust or other entity, for example, the purchasing of an asset from a trust by the trustee unless specifically authorized by the trust instrument.
Generally, all assets you acquire prior to marriage and assets acquired by gift or inheritance during marriage.
A trust established by one person. A married couple has separate trusts if each spouse has his/her own trust with its own assets. In contrast, see “Common Trust.”
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.
Term frequently used for one who establishes or settles a trust. Also called a “trustor” or “grantor.”
A separate listing of special assets that will go to specific individuals or organizations after your incapacity or death. Also called special bequests.
Special Needs Trust
A Trust established for a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs by limiting the use of trust assets for purposes other than the beneficiary’s basic care.
A trust provision restricting both voluntary and involuntary transfers of a beneficiary’s interest, frequently in order to protect assets from claims of the beneficiary’s creditors.
Husband or wife.
Assets are given a new basis when transferred by inheritance (through a will or trust) and are re-valued as of the date of the owner’s death. If an asset has appreciated above its basis (what the owner paid for it), the new basis is called a stepped-up basis. A stepped-up basis can save a considerable amount in capital gains tax when an asset is later sold by the new owner. Also see “Basis.”
Subchapter S Corporation Stock
Stock in a corporation which has chosen to be subject to the rules of subchapter S of the Internal Revenue Code. See “S Corporation.”
Person or institution named in the trust document who will take over should the first trustee die, resign, or otherwise become unable to act.
The spouse who is living after one spouse has died.
See “A Trust.”
Tangible Personal Property
Property that is capable of being touched and moved, such as personal effects, furniture, jewelry, and automobiles. Tangible personal property is distinguished from intangible personal property that has no physical substance but represents something of value, such as cash, stock certificates, bonds, and insurance policies. Tangible personal property also is distinguished from real property, such as land and items permanently affixed to land, such as buildings.
A retirement savings plan (like an IRA, 401(k), 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.
Generally, a gift of more than $15,000 in one year to someone other than your spouse. The value of the taxable gift is applied to your federal gift tax exemption which is currently 11.7 million. After you have used up your exemption, additional gifts will be taxed, usually at the highest estate tax rate in effect.
A form of joint ownership in some states between husband and wife. When one spouse dies, his/her share of the asset automatically transfers to the surviving spouse. The most important difference between a joint tenancy or tenancy in common is that a tenant by the entirety may not sell or give away his or her interest in the property without the consent of the other spouse. Tenancy by the Entirety provides some creditor protection in some states.
A form of joint ownership in which two or more persons own the same property. At the death of a tenant-in-common, his/her share transfers to his/her heirs.
Terms of a Trust
A trust created under the terms of a living trust or under the terms of a will. For example, a testamentary trust is a preferred method to protect an inheritance for (and even from) beneficiaries.
Relating to a will or other document effective at death.
A Trust established in a person’s Will. A Testamentary Trust only comes into operation after the Will has been probated and the assets have been distributed in accordance with the probate court order. In many states, Testamentary Trusts remain subject to the jurisdiction of the probate court.
One who dies with a valid will.
Testator (male)/Testatrix (female)
Person who makes a Will.
Document proving ownership of an asset.
Transfer On Death Designation
A beneficiary designation for a financial account (and in some states, for real estate) that automatically passes title to the assets at death to a named individual or revocable trust without probate. Frequently referred to as a TOD (transfer on death) or POD (payable on death) designation.
Tax on assets when they are transferred to another. The estate tax, gift tax and generation skipping transfer tax are all transfer taxes.
An entity that holds assets for the benefit of certain other persons or entities. A legal arrangement in which “legal title” (registered ownership) to assets is transferred to a “Trustee”, who thereafter has a fiduciary duty to manage and distribute the Trust assets for the benefit of the beneficiaries of the Trust, all in accordance with the instructions contained in the Trust document (“Declaration of Trust”). The beneficiaries hold “equitable title” (right to use and enjoy) to those assets. Trusts of various types are frequently used in estate planning to achieve tax, financial, and personal objectives.
A document, including amendments thereto, executed by a grantor that contains terms under which the trust property must be managed and distributed. Also referred to as a trust agreement or declaration of trust.
An institution that specializes in managing trusts. Also called a corporate trustee.
One who holds legal title to Trust assets, managing and distributing those assets in accordance with the terms and conditions specified in the Declaration of Trust and has a duty to act in the best interests of the trust and its beneficiaries. The term usually includes original (initial), additional, and successor trustees. The trustee has a “fiduciary” obligation to the trust’s beneficiaries and is subject to the highest legal responsibility under the law. A Trustee may be an individual or a bank or trust company licensed to serve as a Trustee. A Trust may have one or more Trustees (Co-Trustees) who act together. A trustee must act personally (unless delegation is expressly permitted in the trust instrument), with the exception of certain administrative functions.
One who establishes a Trust. The terms “Grantor” and “Settlor” are synonyms for “Trustor”.
Trust Estate (Trust Property)
The assets transferred to the Trustee by re-registering their legal titles in the name of the Trustee. The Trust Estate can include real estate, bank accounts, stocks, bonds, brokerage accounts, partnership interests, tangible personal property, and many other types of financial and legal interests.
A “pay-on-death” account. A bank account that will transfer to the beneficiary who was named when the account was established. The terms “transfer on death” (“TOD”), “in trust for” (“ITF”), “as trustee for” (“ATF”), and “pay on death” (“POD”) often appear in the title.
The amount each person is allowed to deduct from federal estate taxes owed after death. In 2021, the credit is $4,625,800. This is the amount of estate taxes that would be due on $11,700,000 in net assets. After applying this credit, the result is that $11,700,000 is “exempt” from estate taxes in 2021.
Uniform Custodial Trust Act
A law enacted by some states providing a simple way to create a trust for a minor or adult beneficiary without the need for a complex trust document. Such a trust typically is used for a trust of modest size, particularly for a disabled beneficiary. An adult beneficiary may terminate the trust at any time, otherwise the trust may continue for the life of the beneficiary.
Uniform Transfer to Minors Act (UTMA)
A law enacted by some states providing a convenient means to transfer property to a minor. An adult person known as a “custodian” is designated by the donor to receive and manage property for the benefit of a minor. Although the legal age of majority in many states may be 18, the donor may authorize the custodian to hold the property until the beneficiary reaches age 21. Formerly called the Uniform Gifts to Minors Act.
Your living trust is unfunded if you have not transferred assets into it.
A mechanism provided in a will or trust, or in some instances by state law, to permit a beneficiary to make decisions on behalf of another beneficiary who can claim or receive property only under or after them.
Document that allows you to transfer title to real estate. With a warranty deed, the person guarantees that the title being transferred is clear (free of any encumbrances). If the title is defective, the person making the transfer is liable. Compare to quitclaim deed.
A written document with instructions for disposing of assets after death. A will can only be enforced through the probate court.