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DIY - Estate Planning
Category: Architecture and Buildings > Glossary of Estate Planning Terms
Date & country: 16/12/2008, USA
Words: 150

A/B Trust
A type of Revocable Living Trust used by married couples. In this type of living trust, two trusts (trust A and trust B) are created at the time the first spouse dies. By dividing the couple's estate into two trusts at the first death, each spouse can pass the maximum amount of property allowed to avoid federal estate taxes. One trust, usually trust A, is often referred to as the marital deductio...

Accumulation Trust
A type of trust which retains and accumulates income for longer than a year, instead of paying all of the income out to the beneficiaries at least annually. These types of trusts are also known as complex trusts.

The person designated by the court to manage and distribute a probate estate when there isn't a will. If there is a will, the person so designated is called the executor (male), executrix (female), or personal representative.

Any person over the age of 18 or 21 years. The age of an adult depends on specific state laws.

A sworn, written statement executed under oath in front of a witness or witnesses.

Affidavit of Domicile
A sworn, written statement verifying city, county and state of residence.

Affidavit of Survivorship
A sworn, written statement verifying the identity of the survivor in a joint tenancy or other property ownership relationship.

Ancillary probate
A probate proceeding conducted in a state other than the state where the decedent lived and the primary probate occurs.

Annual Exclusion
The amount of property the IRS allows a person to gift to another person during a calendar year before a gift tax is assessed and/ or a gift tax return must be filed. The amount is increased periodically. There is no limit to the number of people you can give gifts to which qualify for the annual exclusion. To qualify for the annual exclusion, the gift must be one that a recipient can enjoy immedi...

Ante-nuptial Agreement
A contract between two potential marriage partners specifying how the property owned by each prior to marriage and owned individually or jointly during marriage will be divided should the couple divorce.

Ascertainable Standard
The IRS defined standard which governs the use of trust B property and prevents the property from being considered part of the trustee's property for estate tax purposes. The standard is defined as 'health, education, maintenance and support' of the surviving spouse and children.

Asset Protection
Protecting your property from legal problems and taxes during your life and after your death.

A tax term, which refers to the original or acquisition value of a property, used to determine the amount of tax that will be assessed. The basis is deducted from the sales price of the property when it is sold to determine the profit or loss.

The person(s) or organization(s) who receive(s) the benefits of trust property held under the terms of a trust.

An old legal term meaning to give a gift or leave property under the terms of a will.

An insurance policy used to ensure a legal representative will do his job and not misuse or steal funds he is controlling. The bond guarantees that a certain amount of money will be paid if a party is injured due to acts of the legal representative.

By Right of Representation
Common terminology for the Latin term, Per Stirpes. This is the most common way of distributing an estate such that if one of the children is dead, his children share equally in his share of the estate distribution. This term is often summarized by the phrase, 'if the parent is dead his children stand in his shoes.'

Charitable Remainder Trust
A trust used to make large donations of property or money to a charity so the person making the gift or donation can obtain a tax advantage. In a charitable remainder trust, the donor reserves the right to use the trust property during his life or some other specified time period, and when the agreed period is over the property goes to the charity.

A written change or amendment to a will.

Community Property
Some state laws require that all assets acquired during a marriage belong equally to both spouses, except for gifts and inheritances given specifically to one spouse. The eight states with such laws are known as community property states. The eight states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington. Puerto Rico also uses the community property system, and Wi...

Complex Trust
See Accumulation Trust

A person appointed to be legally responsible for the management of property and money belonging to a minor or incompetent person. The conservator may act as the guardian or the guardian may be a separate person and the conservator will just work with the guardian.

A court controlled program where a conservator is appointed by the court to manage the monetary affairs of a person(s) who is unable to manage his/her own affairs.

An agreement between two or more parties. It may be oral, but generally it is written.

A person or institution to whom money is owed.

Custodial Parent
The parent given custody and responsibility by the divorce court for the children of the divorced couple.

Death taxes
Taxes levied on the property of a deceased person. Federal death taxes are usually referred to as estate taxes. Local and state death taxes are often referred to as inheritance taxes, or simply death taxes.

A person who owes money.

The person who has died.

A written document used to evidence ownership and/or transfer title to real estate.

A legal term referring to real estate which passes through a will.

The refusal of a beneficiary to accept property willed to him. When a disclaimer is made, the property is generally transferred to the person next in line under the will. A disclaimer is also called a renunciation.

Cutting a person off from his or her inheritance in an estate where he or she would have been a natural heir.

The parting with or giving away of property.

Dispositive Provision
A clause in a will or trust that gives away property.

The state or county which is the primary residence of a person.

A person who receives a gift.

A person who makes a gift.

Due-on-sale Clause
A clause in a mortgage document which requires that the mortgage be paid in full if the encumbered property is transferred.

Durable Power of Attorney
A document established by an individual (the principal) granting another person (the agent) the right and authority to handle the financial and other affairs of the principal. The Durable Power of Attorney survives through the period of incompetency of the principal.

A legal word that describes the situation where property transfers to the ownership of the state government because there are no legal inheritors to claim it.

The aggregate of all assets and debts held (owned) by an individual during his or her life or at the time of his or her death.

Estate Taxes
Taxes imposed on the 'privilege' of transferring property by reason of death. Estate tax is most commonly used in reference to the tax imposed by the Federal Government rather than the state government. Estate taxes are intended to raise revenue for the government and break up a family's wealth, so that the nation's wealth doesn't concentrate in the hands of a few families.

Executor/ Executrix
The person (male/female) named in a will to manage a decedent's estate. The more modern term is a 'personal representative,' which removes any reference to the sex of the person.

Exemption Equivalent
When property is given as a gift or passed to heirs as part of an estate, it is subject to federal estate and gift tax laws. Each person is given a tax credit (the 'unified credit') that can be used to offset the tax assessed against a specific amount of property. The amount of property that results in a tax exactly equal to the unified credit is known as the 'exemption equivalent' (see Append...

Family Trust
Another name for a living trust.

A person with the legal duty to act primarily for another's benefit in a position of trust, good faith, candor and responsibility. 'Fiduciary' is often used as an alternative term for 'trustee.'

Fiduciary Duty
The duty of a fiduciary to act in a position of trust, good faith, candor and responsibility, on behalf of another. The duty is one of the best defined responsibilities under the law and is very strictly enforced by the courts.

The use of deception for unlawful gain.

General Power of Attorney
A legal document that, when properly executed, gives one person (the agent) full legal authority to act on behalf of another (the principal). The scope of the document can be as broad or narrow as you desire as defined in the document. A general power of attorney becomes invalid when the principal dies or becomes incompetent.

A transfer of property without receiving some benefit in return. The person making the transfer cannot be obligated in any way to make the transfer.

Gift Taxes
Taxes levied by the Federal Government on gifts. Gift taxes and estate taxes have been 'merged' into a single tax called the 'unified tax.'

The person who establishes a trust and transfers assets into it. Other terms for the 'grantor' include 'trustor' and 'settlor.'

Grantor Trust
A trust in which the person establishing the trust retains enough 'ownership rights' or 'incidents of ownership' that the person is treated by the IRS as the owner of the trust assets for tax purposes. The right to revoke the trust is sufficient to make the trust a grantor trust.

Gross Estate
The total value of an estate at the date of the decedent's death. The value is determined before debts and other 'deductions' are subtracted from the estate value.

A party who guarantees repayment of a loan, using their own assets if necessary.

A person designated by court appointment and given the responsibility of managing the personal affairs of a minor child or a person that is legally incompetent to manage his or her own affairs.

A person who, by law, inherits property from a deceased relative who didn't leave any type of will or trust which distributes his or her property after death. The term is more 'loosely' used to refer to a person who receives property from a decedent through any means.

A personal possession that usually has a sentimental value which exceeds its monetary value.

Holographic Will
A do-it-yourself handwritten will. To be valid this will must be totally in your own handwriting, signed and dated. About 20 states allow holographic wills, but it is best to have a more formal will.

Homestead Laws
State laws which protect your house, clothing, and personal property, up to a specific dollar amount, from being taken away by most types of lawsuits or bankruptcies.

Household Items
The phrase in a will which indicates everything which may be used for the convenience of the house such as tables, chairs, bedding, etc. Apparel, books, weapons, and the like are not included.

A person who is legally incapable of managing his or her own business affairs. A person may be permanently or temporarily incapacitated. A probate court usually decides if a person is incapacitated or not. 'Incapacitated' is often used interchangeably with 'incompetent.'

Incidents of Ownership
All or any management control over a trust or an insurance policy. In relation to an insurance policy, incidents of ownership include the right to change the beneficiaries, borrow cash value, and change the ownership, among other rights.

Income Tax
A tax assessed on gain made by an individual or entity.

A person who is legally incapable of managing his or her own business affairs. A person may be permanently or temporarily incompetent. A probate court usually decides if a person is incompetent or not. 'Incompetent' is often used interchangeably with 'incapacitated.'

Independent Trustee
A trustee who is unrelated to the person who establishes a trust (the grantor) and the beneficiaries of the trust. Unrelated attorneys, banks, corporations, etc., are usually chosen to act as independent trustees. The IRS requires a trust to have an independent trustee if the trust is to achieve certain estate tax and income tax benefits available to irrevocable trusts (not living trusts).

To take or receive property by legal right from a deceased person.

Inheritance Tax
A tax imposed upon the transfer of property from a deceased person's estate. 'Inheritance Tax' is a term which is usually applied to the taxes charged by a state, where as the taxes imposed by the Federal Government are usually referred to as estate taxes.

Insurance Trust
An irrevocable trust used to hold insurance and pass it on to your heirs without any estate taxes on the death benefits of the policy.

Inter Vivos Revocable Trust
One name for a living trust. 'Inter vivos' is Latin for 'between the living.'

To die without a will or other valid estate transfer devise.

Intestate Succession
The order of persons entitled to received property distributed by a state court when the deceased failed to write a will or trust, or the will or trust has failed to legally distribute the deceased person's property.

Irrevocable Trust
A trust that cannot be changed, canceled, or 'revoked' once it is set up. A 'living trust' is not an example of an irrevocable trust. Insurance trusts and 'Children's Trusts,' or '2503 Trusts,' are examples of irrevocable trusts. Irrevocable trusts are treated by the IRS very differently than revocable trusts.

A legal term used in wills and trusts meaning one's children, grandchildren, etc., either through birth or adoption.

Joint Ownership
The situation where two or more people own the same piece of property together. The property can be 'owned' by the people as joint tenants, tenants in common, tenants by the entirety and other legally defined relationships.

Joint Tenancy
When two or more people take title to the same property and simultaneously each owns 100% of the property, or has full rights to the property. At the death of one joint tenant, his or her share immediately transfers to the ownership of the survivor(s).

The location where a person has access to the court system. The place where a person lives usually determines which court has the legal right to adjudicate his or her claims, probate proceedings, or other matters. The location of real property can also determine the 'jurisdiction' of legal matters related to that property.

Letters Testamentary
A formal court order (document) issued by a probate judge giving the personal representative authority to conduct business, contract, sell estate property, pay bills, distribute estate property, and otherwise act on behalf of the estate.

Life Estate
The right to have all of the benefit from a property during one's lifetime. The person with the right doesn't own the property, and when he or she dies, the property is not included in his or her estate.

Life Insurance Trust
A type of irrevocable trust used to hold life insurance. When a life insurance policy is held in an insurance trust, it is protected from estate taxes when the insured dies; provided the trust is established properly, managed properly, and the insured does not retain any 'incidents of ownership.'

Living Trust
A type of revocable trust used in estate planning to avoid probate, help in situations of incompetency, and allow 'smooth' management of assets after the death of the grantor or person who established the trust. The trust can be effective in eliminating or reducing estate taxes for married couples. Revocable Living trusts are established during the life of the grantor, who retains the right to t...

Living Will
A document defining your 'right to die.' It usually states that you do not want to have your life artificially prolonged by modern medical technologies. You can specifically define the means which you do not want used or do want used.

Loving Trust
Another name for a living trust. The term 'loving trust' was popularized in the 1980's by a group selling living trusts.

Lunch Theory of Justice
Lee's theory concerning the way courts dispense justice, i.e., the outcome of a case depends on what the judge or jury ate for lunch. We don't really believe that, because we have a deep respect for the jury system, but the outcome of some cases can't be explained any other way.

Marital Deduction
The unlimited deduction allowed under federal estate tax law for all qualifying property passing from the estate of the deceased spouse to the surviving spouse. The value of the property passing to the surviving spouse under the marital deduction is 'deducted' from the deceased spouse's estate before federal estate taxes are calculated on the estate. Proper planning and use of the deduction all...

Marital Deduction Trust
The trust which 'receives' the property passed under the marital deduction laws, from the deceased spouse's estate to the surviving spouse. Property in the marital deduction trust will be included as part of the surviving spouse's estate (for estate tax purposes) when he or she dies.

A child who is not old enough to have the legal capacity to govern his or her own affairs. Depending upon the specific state and the specific laws being applied, a minor is usually either under 21 years old or 18 years old.

Net Taxable Estate
The value of an estate upon which the federal estate tax is levied. The net taxable estate or 'net value' is the total or 'gross value' of the estate less liabilities, expenses and other deductions allowed by the tax laws.

The affirmation of an agent (the notary) of the state affirming that the signature on the document being 'notarized' is in fact the signature of the person purportedly signing the document.

A person who has state granted authority to certify the validity or authenticity of the signature being made on a document.

The legally prescribed process of making someone aware of a legal proceeding or matter.

Pay on Death Account
See POD Account.

Per Capita
A method of distributing an estate such that all of the surviving descendants share equally in the property. Also know as Pro Rata.

Per Stirpes
The most common way of distributing an estate such that if one of the children is dead, his or her children share equally in his or her share. Also know as By Right of Representation.

Perpetuities Savings Clause
A 'safety net' clause included in most trusts, which automatically terminates the trust at the last possible moment to prevent any possible violation of trust law caused because the general terms of the trust did not properly provide for a termination of the trust as required by law. Under most state laws a trust must have a finite 'life' and end prior to the time required by law.

Personal Letter
A letter directing the distribution of personal items. This letter is referenced in a person's will and is recognized by the courts upon the death of the person making the will and letter.

Personal Property
Property other than real estate (land and permanent structures on the land). Cars, furniture, securities, bank accounts, and animals are examples of personal property.

Personal Representative
The 'modern' term for the executor or executrix, who is the court appointed individual that probates the will and carries out the will's instructions under court supervision.

POD Account
A bank account that is designed to avoid probate. It is a contract between the bank and the account holder guaranteeing that, upon the account holder's death, the bank will pay the balance of the account to whomever is designated to receive the account.