A Trust
The surviving spouse’s portion of an A-B trust.
Also called marital trust or survivor’s trust.
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A-B Trust
A living trust with a provision that lets you
provide for your surviving spouse, keep control
over who will receive your assets after your
spouse dies, and leave up to $2 million (in 2002
and 2003) to your beneficiaries, estate-tax
free. (Under current tax law, this amount will
increase over the next several years as the
federal estate tax exemption increases.)
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Administration
The court-supervised distribution of an estate
during probate. Also used to describe the same
process for a trust after the grantor dies.
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Administrator
Person named by the court to represent a probate
estate when there is no will or the will did not
name an executor. Female is administratix. Also
called personal representative.
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Alternate Beneficiary
Person or organization named to receive your
assets if the primary beneficiaries named in
your Trust die before you do.
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Ancillary
Administration
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.
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Annual Exclusion
Amount you can
give someone each year without having to file a
gift tax return or pay a gift tax. Currently
$11,000 per recipient ($22,000 if married). The
amount of tax-free gifts is tied to inflation
and may increase from year to year.
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Applicable
Exclusion Amount
See "Unified Credit". |
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Assets
Basically, 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.
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Assignment
A short document that transfers your interest in
assets from your name to another. Often used
when transferring assets to a trust.
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B Trust
The deceased spouse’s portion of an A-B trust.
Also called credit shelter or bypass trust.
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Basis
What you paid for an asset. The value that is
used to determine gain or loss for income tax
purposes.
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Beneficiaries
In a trust, the persons and/or organizations who
receive the trust assets (or benefit from the
trust assets). Designated persons on life
insurance policies, annuities or retirement
plans.
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By-Pass
Trust
Another name for the "B" part of an A-B living
trust because the assets in this trust bypass
federal estate taxes.
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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.
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Children’s Trust
A trust included in your living trust or will.
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.
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Codicil
A written change or amendment to a Will.
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Co-Grantors
Two or more persons who establish a trust
together.
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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.
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Common Trust
One living trust established by two or more
individuals (usually a married couple), or a
trust intended for multiple beneficiaries.
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Community Property
Assets a husband and wife acquire by joint
effort during marriage if they live in one of
the eight community property states. (Wisconsin
also has a similar law, but does not use the
term "community property.") Each spouse owns
half of the assets in the event of divorce or
death.
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Conservator
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 some states, there is a guardian of
the person and a conservator of the estate.)
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Conservatorship
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.
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Contest
To dispute or challenge the terms of a will or
trust.
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Corporate Trustee
An institution, like a bank or trust company,
that specializes in managing trusts.
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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.
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Creditor
Person or institution to whom money is owed.
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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.
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Deceased
One who has died.
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Deed
A document that lets you transfer title of your
real estate to another person(s). Also see
warranty deed and quitclaim deed.
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Disclaim
To refuse to accept a gift or inheritance so it
can go to the recipient who is next in line.
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Discretion
The full or partial power to make a decision or
judgment.
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Disinherit
To prevent someone from inheriting from you.
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Distribution
Payment in cash or asset(s) to one who is
entitled to receive it.
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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.
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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.
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Equity
The current market value of an asset less any
loan or liability.
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Estate
Assets and debts left by an individual at death.
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Estate Taxes
Federal or state taxes on the value of assets
left at death. Also called inheritance taxes or
death taxes.
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Executor
Person or institution named in a will to carry
out its instructions. Female is executrix. Also
called a personal representative.
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Family
Business Deduction
An additional federal estate tax exemption for
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. Under
current law, this deduction is eliminated in
2004 when the federal estate tax exemption is
increased to $1.5 million.
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Federal Estate Tax
Exemption
Amount of an individual’s estate that is exempt
from federal estate taxes. In 2003, the
exemption amount is $1 million ($1.5 million in
2004). Under current law, it is scheduled to
increase to $3.5 million by the year 2009,
disappear in the year 2010 (when the federal
estate tax is scheduled to be repealed) and
return in 2011 at $1 million.
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Fiduciary
Person having the legal duty to act primarily
for another’s benefit. Implies great confidence
and trust, and a high degree of good faith.
Usually associated with a trustee.
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Funding
The process of transferring assets to your
living trust.
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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.
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Generation Skipping
Transfer Tax (GSTT)
A steep tax (50% in 2002) on assets that "skip"
a generation and are left directly to
grandchildren and younger generations. Everyone
has an exemption from this tax. In 2002, the
GSTT exemption is $1,100,000.
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Gift
A transfer from one individual to another
without fair compensation.
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Gift Tax
A federal tax on gifts made while you are
living. In 2002, $11,000 per person per year is
exempt from gift tax. Also see "Annual
Exclusion."
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Grantor
The person who sets up or creates the trust. The
person whose trust it is. Also called creator,
settlor, trustor, donor or trustmaker.
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Gross Estate
The value of an estate before debts are paid.
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Guardianship
See "Conservatorship."
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Health
Care Proxy
See "Durable Power of Attorney for Health Care."
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Heir
One who is entitled by law to receive part of
your estate.
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Holographic Will
A handwritten will.
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Homestead Exemption
Portion of your residence (dwelling and
surrounding land) that cannot be sold to satisfy
a creditor’s claim while you are living.
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Incapacitated/
Incompetent
Unable to manage one’s own affairs, either
temporarily or permanently. Lack of legal power.
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Inheritance
The assets received from someone who has died.
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Inter vivos
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.
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Irrevocable Trust
A trust that cannot be changed (revoked) or
cancelled once it is set up. Opposite of
revocable trust.
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Intestate
Without a will.
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Joint
Ownership
When two or more
persons own the same asset.
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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).
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Liquid
Assets
Cash and other assets (like stocks) that can
easily be converted into cash.
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"Living Probate"
The court-supervised process of managing the
assets of one who is incapacitated.
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Living Trust
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.
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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.
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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.
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Marital Trust
See "A Trust."
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Medicaid
A federally-funded health care program for the
poor and minor children, co-administrated by the
states and federal government.
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Medicare
A federally-funded health care program,
primarily for Americans over age 65 who are
covered by Social Security or Railroad
Retirement benefits.
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Minor
One who is under the legal age for an adult,
which varies by state (usually age 18 or 21).
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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.)
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Net Value
The current market value of an asset less any
loan or debt.
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Non-Intervention
Probate
A form of probate available in many states.
Intended to simplify the probate process by
requiring fewer court appearances and less court
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Payable-on-Death
Account
See "Totten Trust."
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Per Capita
A way of distributing your estate so that your
surviving descendents will share equally,
regardless of their generation.
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Per Stirpes
A way of distributing your estate so that your
surviving descendents will receive only what
their immediate ancestor would have received if
he/she had been living at your death.
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Personal Property
Movable property. Includes furniture,
automobiles, equipment, cash and stocks.
Opposite of real property that is permanent
(like land).
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Personal Representative
Another name for an executor or administrator.
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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 (pour over into) your
living trust upon your death.
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Power of Attorney
A legal document giving someone legal authority
to sign your name on your behalf in your
absence. Ends at incapacity (unless it is a
durable power of attorney) or death.
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Probate
The legal process of validating a will, paying
debts, and distributing assets after death.
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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 also do not go through probate.
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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.
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Qualified
Domestic Trust (QDOT)
Allows a non-citizen spouse to qualify for the
estate tax marital deduction.
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Qualified Terminable
Interest Property (QTIP)
A trust that delays payment of 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.
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Qualifying Subchapter S
Trust (QSST)
Trust that meets certain IRS qualifications and
is allowed to own Subchapter S stock.
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Quitclaim Deed
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.
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Real
Property
Land and property that is permanently attached
to land (like a building or a house).
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Recorded Deed
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.
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Revocable Trust
A trust in which the person establishing it
retains the power to change or cancel the trust
during his/her lifetime. Opposite of irrevocable
trust.
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Required Beginning Date
(RBD)
The date you must begin taking required minimum
distributions from your tax-deferred plans.
Usually, it is April 1 of the calendar year
following the calendar year in which you turn
age 70 1/2. 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).
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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.
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Separate
Property
Generally, all assets you acquire prior to
marriage and assets acquired by gift or
inheritance during marriage.
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Separate Trust
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."
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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.
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Settlor
See "Grantor."
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Special Gifts
A separate listing of special assets that will
go to specific individuals or organizations
after your incapacity or death. Also called
special bequests.
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Special Needs Trust
Allows you to provide for a disabled loved one
without impairing their access to government
benefits.
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Spendthrift Clause
Protects assets in a trust from a beneficiary’s
creditors.
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Spouse
Husband or wife.
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Stepped-up Basis
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."
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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.
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Surviving Spouse
The spouse who is living after one spouse has
died.
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Survivor’s Trust
See "A Trust."
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Successor Trustee
Person or institution named in the trust
document who will assume the duty of
administering the trust should the first trustee
die, resign, or otherwise become unable to act.
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Tax-Deferred
Plan
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.
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Taxable Gift
Generally, a gift of more than $11,000 in one
year to someone other 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. (This amount is tied to
inflation and may increase from year to year.)
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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/her share transfers to
his/her heirs.
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Tenants-by-the Entirety
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.
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Testamentary Trust
A trust in a will. Can only go into effect at
death. Does not avoid probate.
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Testate
One who dies with a valid will.
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Title
Document proving ownership of an asset.
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Transfer Tax
Tax on assets when they are transferred to
another. The estate tax, gift tax and
generation-skipping tax are all transfer taxes.
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Trust
An entity that holds assets for the benefit of
certain other persons or entities.
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Trust Company
An institution that specializes in managing
trusts. Also called a corporate trustee.
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Trustee
Person or institution who manages and
distributes another’s assets according to the
instructions in the trust document.
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Trustor
See "Grantor."
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Totten Trust
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.
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Unified Credit
(Also called Applicable Exclusion Amount). The
amount each person is allowed to deduct from any
federal estate taxes owed after death. In 2003,
the credit is $345,800, which is the amount of
estate taxes owed on the first $1 million in
assets.
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Uniform
Transfer to Minors Act (UTMA)
Law enacted in many states that lets you leave
assets to a minor by appointing a custodian. In
most states, the minor has the legal right to
receive the assets at legal age.
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Unfunded
Your living trust is unfunded if you have not
transferred (i.e., retitled) assets into it.
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Warranty
Deed
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.
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Will
A written document with instructions for
disposing of assets after death. A will can only
be enforced through the probate court.
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