Estate Planning Basics

End of Life Management Toolkit #6 | by Team Passare and Robert L. Shepard

Glossary
Accounting: A detailed report of trust activity during a particular time period; the format and frequency of trust accountings may be set forth by the terms of a trust document.
Administration: The process of finalizing or settling an estate; this process can be formal or informal, depending on a state’s requirements and the size of the estate.
Adjusted Gross Estate: The gross estate minus debts and administration expenses.
Advance Directive: A document naming an agent and/or detailing desires in the event that the creator (the “principal”) becomes unable to make independent decisions. Advance directives include powers of attorney for financial and legal decisions, as well as health care powers of attorney/health care proxies/living wills/DNRs for health care and treatment decisions.
Agent: An individual named to act on another ’s behalf in some fashion. An attorney-in-fact under a power of attorney is acting as an agent. The person named in a health care directive to make health care decisions is also an agent. Agents have a “fiduciary duty” to act in a reasonable manner.
Alternate Valuation Date: A date within six months of a decedent’ s death which can be used to value the estate assets as an alternative to the value on the actual date of death.
Annual Gift Tax Exclusion: An amount set by federal law which can be given to any number of individuals on a yearly basis without being subject to the federal gift tax.
Amendment: A document which by its terms modifies a Revocable Trust but does not replace the trust.
Amendment and Restatement: A document which by its terms modifies and replaces a Revocable Trust.
Attorney-in-Fact: The person named in a power of attorney to act on an individual’s behalf based on the powers granted in that document.
Basis: The value of an asset when it is acquired. Assets acquired by a beneficiary from a decedent may get a “stepped up” basis (the value of the asset at the date of the decedent’ s death) as compared to a “carryover” basis (the value of the asset when acquired by the decedent).
Beneficiary: An individual or entity receiving some portion of Will or trust assets. A primary beneficiary is entitled to assets before any subsequent, or contingent, beneficiary’s rights.
Charitable Remainder Trust: An irrevocable split-interest transfer between a charity and one or more family members (with the family members getting a beneficial interest for a period of time and the charity receiving a remainder interest).
Charitable Lead Trust: An irrevocable split-interest transfer between a charity and one or more family members (with the charity getting a beneficial interest for a period of time and the family members receiving a remainder interest).
Codicil: A document which by its terms modifies a Last Will and Testament.
Community Property: Property acquired during marriage for which a husband and wife own an undivided interest in the entire asset; several states follow this type of property regime, including Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin (Wisconsin uses the phrase “marital property”).
Corpus: The main property in a trust; the trust principal (as opposed to interest earned on trust assets, until such interest is added to the trust principal).
Decedent: A deceased individual.
Devise: A transfer of real property in a Will (as compared to a “bequest” of personal property).
Disclaimer: The act of a beneficiary (such as a spouse) to decline assets which he or she is entitled to receive under a Will or Trust.
Disinherit: To purposely and with intention exclude an individual from receiving assets as beneficiary under a Will or trust.
Domicile: The location/state of an individual’ s residence.
Executor: The person (or entity) who handles the steps involved in carrying out the instructions in a Will, including the probate process and the distribution of assets passing under a Will. This person may also be referred to as personal representative or administrator.
Estate: The total accumulation of an individual’ s assets. There are different subsets of an estate. A probate estate means all of the assets that must be processed in a probate proceeding. A trust estate means all of assets that are held by a trust. A taxable estate means all of assets that are subject to estate tax.
Estate Tax: A transfer tax that is assessed on an estate at death (sometimes called a “death tax”). The United States government and many states have an estate tax.
Estate Tax Exclusion Amount: An asset amount set forth by federal law that can transfer upon death from a decedent to beneficiaries without any estate tax due.
Family Limited Partnership: A business organization created under state law containing at least one general partner (who controls the management of the business) and at least one limited partner.
Fiduciary: A person or entity entrusted with special authority over an individual’s assets and/or person, and corresponding special duties to use that authority in the best interests of that individual.
Grantor: The person who creates and signs a trust agreement and whose assets are transferred into the trust. This person may also be referred to as settlor, trustor, or trust maker.
Grantor Retained Trust: A type of irrevocable trust in which the creator of the trust (the “grantor”) retains the right to receive income from the trust for a certain period of time.
Gross Estate: The fair market value of all property owned by a decedent.
Heir: An individual entitled to receive a decedent’ s assets if the decedent does not specify beneficiaries through other means, such as a Will or trust document.
Inheritance Tax: A transfer tax imposed by some states upon an individual’s death; this tax is imposed on the beneficiaries of the transfer, as opposed to the estate of the decedent.
Intangible Property: Personal property that has value based on what it represents (as compared to “tangible” personal property); examples include stock certificates, bonds, promissory notes, contracts, or claims
Inter Vivos Trust: A trust created during lifetime (as compared to a “testamentary” trust); also known as a “living trust.”
Irrevocable Trust: A trust which by its terms cannot be terminated at the request of the creator during his or her lifetime; once created, it continues based on the terms set forth in the trust agreement. There are several types of irrevocable trusts, most of which are created with tax-savings motivations.
Issue: Direct descendants of an individual, including children and any subsequent generations.
Joint Tenancy with Right of Survivorship: Joint ownership of property for spouses where each spouse has an undivided interest in the property; at death of one spouse, the surviving spouse automatically owns the entire interest in the property.
Last Will and Testament: The formal title for a Will; a document in which an individual sets out his or her desires for the transfer of assets upon death.
Limited Power of Appointment: A restricted right to name one or more beneficiaries from a pre-defined list of potential beneficiary classes (as compared to a “general power of appointment”).
Liquidity: An estate’s measure of its ability to access cash assets, often necessary to pay taxes, debts, and administration expenses.
Living Trust: A trust created during lifetime (as compared to a “testamentary” trust); also known as an “inter vivos trust.”
Living Will: A type of advance directive which typically provides direction regarding health care treatment desires of an individual if he or she is unable to otherwise indicate those desires when the need arises; a living will may also include the identification of an agent to advocate for those wishes on the individual’s behalf.
Marital Deduction: The ability of a married individual to transfer unlimited amounts of assets to his or her spouse without incurring any transfer tax (gift or estate).
Marital Trust: A trust that contains assets qualifying for the marital deduction.
Non-Probate Property: All property that is not “probate” property and transfers to beneficiaries at death through means other than the probate process
Per Stirpes: A method of defining the right of children/issue of a deceased beneficiary to receive only the amount the deceased beneficiary would have received when stepping in as beneficiaries of that share.
Personal Property: Assets which are not realty/real property, including two types: “tangible” or “intangible.”
Personal Representative: The person who handles the steps involved in carrying out the instructions in a Will, including the probate process and the distribution of assets passing under a Will. This person may also be referred to as an executor or administrator.
Portability: The ability of a married decedent to transfer his or her unused estate tax exclusion amount to the surviving spouse.
Pourover Will: A Last Will and Testament that directs all of a decedent’s assets into the decedent’ s trust (the trust then directs the trustee how to handle those assets).
Principal: The core assets of an account or trust (this excludes interest earned on an account, until that interest is added to the principal).
Private Foundation: A charitable gifting technique which utilizes a formal organization to operate and distribute funds to a charity with resulting tax benefits; such organizations are governed by federal tax laws.
Probate: A court-supervised process to accomplish the transfer of property from a decedent to the decedent’s beneficiaries as directed by a Will. Information used during this process becomes a matter of public record.
Probate Property: Property that, at death, transfers by a Last Will and Testament to a beneficiary through a probate process.
Qualified Domestic Trust: A specific type of trust with provisions for a non-U.S. citizen spouse to obtain benefits similar to the marital deduction.
Qualified Terminable Interest Property: Property distributing to a surviving spouse with some restrictions that still qualifies for the unlimited marital deduction.
Real Property: Land or any interest in land; examples include a primary residence, a vacation home, investment real estate, a farm, or a condominium.
Residuary: The remaining portion of an estate after making specific distributions and payment of debts and expenses.
Revocable Trust: A trust which by its terms can be terminated by its creator during his or her lifetime.
Settlor: The creator of a trust (also known as “grantor,” “trustor,” or “maker”).
Spendthrift Provision: The creator of a trust (also known as “grantor,” “trustor,” or “maker”).
Special Needs Trust: A type of irrevocable trust created by (or on behalf of) a disabled individual for that disabled beneficiary to provide supplemental support without disqualifying the beneficiary from receiving government benefits; this type of trust has specific requirements, including payback/ reimbursement to appropriate government agencies (compare this trust to a third-party “Supplemental Needs Trust”).
Sprinkling Trust: A trust whose trustee has authority to spread income and/or principal among multiple trust beneficiaries.
Supplemental Needs Trust: A type of irrevocable trust created by a third party for a disabled beneficiary to provide supplemental support without disqualifying the beneficiary from receiving government benefits.
Tangible Personal Property: Property with independent substance; examples include furniture, jewelry, cars, or stamp collections.
Tenancy by the Entirety: Joint ownership of property where each co-tenant has an undivided interest in the property; at death of a co-owner, his or her interest automatically passes to the surviving co-owner.
Tenancy in Common: Joint ownership of property where each cotenant has an undivided interest in the property; at death of a co-owner, his or her interest does not automatically pass to the surviving co-owner but instead, passes through the co-owner ’s Will.
Testator: The decedent, creator of a Will.
Testamentary: At death.
Testamentary Trust: A trust that takes effect upon death typically through a Last Will and Testament (as compared to a “living” or “inter vivos” trust).
Trust: A set of directions established by its creator. To have a valid trust there must be trust provisions (usually in writing), a trustee, a beneficiary, and some assets transferred to the trust. In essence, a trust consists of directions by the creator telling the trustee how to hold property for the benefit of a beneficiary. Trusts may be revocable or irrevocable.
Trustee: The manager of a trust; the primary trustee is the initial manager; the successor trustee is the manager of the trust after the current manager resigns or is incapacitated or deceased.
Trustor: The creator of a trust (also known as “grantor,” “settlor,” or “maker”).
Trust Situs: The state whose law is applicable to a particular trust to govern its implementation and interpretation.
Will: The informal title for a Last Will and Testament; a document in which an individual sets out his or her desires for the transfer of assets upon death.
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