A
Trust
The surviving spouse’s portion of an A-B trust. Also called
marital trust or survivor’s trust. |
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.) |
Administration
The court-supervised distribution of an estate during probate. Also
used to describe the same process for a trust after the grantor
dies. |
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. |
Alternate
Beneficiary
Person or organization named to receive your assets if the primary
beneficiaries named in your Trust die before you do. |
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. |
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. |
Applicable
Exclusion Amount
See "Unified Credit". |
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.
|
Assignment
A short document that transfers your interest in assets from your
name to another. Often used when transferring assets to a trust.
|
B
Trust
The deceased spouse’s portion of an A-B trust. Also called
credit shelter or bypass trust. |
Basis
What you paid for an asset. The value that is used to determine
gain or loss for income tax purposes. |
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. |
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. |
|
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. |
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. |
Codicil
A written change or amendment to a Will. |
Co-Grantors
Two or more persons who establish a trust together. |
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.
|
Common
Trust
One living trust established by two or more individuals (usually
a married couple), or a trust intended for multiple beneficiaries.
|
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. |
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.) |
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. |
Contest
To dispute or challenge the terms of a will or trust. |
Corporate
Trustee
An institution, like 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. |
Creditor
Person or institution to whom money is owed. |
Custodian
Person named to manage assets left to a minor under the Uniform
Transfer to Minors Act. In most states, the minor receives the assets
at legal age. |
Deceased
One who has died. |
Deed
A document that lets you transfer title of your real estate to another
person(s). Also see warranty deed and quitclaim deed. |
Disclaim
To refuse to accept a gift or inheritance so it can go to the recipient
who is next in line. |
Discretion
The full or partial power to make a decision or judgment. |
Disinherit
To prevent someone from inheriting from you. |
Distribution
Payment in cash or 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. |
Equity
The current market value of an asset less any loan or liability.
|
Estate
Assets and debts left by an individual at death. |
Estate
Taxes
Federal or state taxes on the value of assets left at death. Also
called inheritance taxes or death taxes. |
Executor
Person or institution named in a will to carry out its instructions.
Female is executrix. Also called a personal representative. |
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. |
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. |
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. |
Funding
The process of transferring assets to your living trust. |
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. |
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. |
Gift
A transfer from one individual to another without fair compensation.
|
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." |
Grantor
The person who sets up or creates the trust. The person whose trust
it is. Also called creator, settlor, trustor, donor or trustmaker.
|
Gross
Estate
The value of an estate before debts are paid. |
Guardianship
See "Conservatorship." |
Health
Care Proxy
See "Durable Power of Attorney for Health Care." |
Heir
One who is entitled by law to receive part of your estate. |
Holographic
Will
A handwritten will. |
Homestead
Exemption
Portion of your residence (dwelling and surrounding land) that cannot
be sold to satisfy a creditor’s claim while you are living.
|
Incapacitated/
Incompetent
Unable to manage one’s own affairs, either temporarily or
permanently. Lack of legal power. |
Inheritance
The assets received from someone who has died. |
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. |
Irrevocable
Trust
A trust that cannot be changed (revoked) or cancelled once it is
set up. Opposite of revocable trust. |
Intestate
Without a will. |
Joint
Ownership
When
two or more persons own the same asset. |
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).
|
Liquid
Assets
Cash and other assets (like stocks) that can easily be converted
into cash. |
"Living
Probate"
The court-supervised process of managing the assets of one who is
incapacitated. |
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. |
Living
Will
A written document that states you do not wish to be kept alive
by artificial means when the illness or injury is terminal. |
Marital
Deduction
A deduction on the federal estate tax return that lets the first
spouse to die leave an unlimited amount of assets to the surviving
spouse free of estate taxes. However, if no other tax planning is
used, and the surviving spouse’s estate is more than the amount
of the federal estate tax exemption in effect at the time of his/her
death, estate taxes will be due at that time. |
Marital
Trust
See "A Trust." |
Medicaid
A federally-funded health care program for the poor and minor children,
co-administrated by the states and federal government. |
Medicare
A federally-funded health care program, primarily for Americans
over age 65 who are covered by Social Security or Railroad Retirement
benefits. |
Minor
One who is under the legal age for an adult, which varies by state
(usually age 18 or 21). |
Net
Estate
The value of an estate after all debts have been paid. (Federal
estate taxes are based on the net value of an estate.) |
Net
Value
The current market value of an asset less any loan or debt. |
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
supervision. |
Payable-on-Death
Account
See "Totten Trust." |
Per
Capita
A way of distributing your estate so that your surviving descendents
will share equally, regardless of their generation. |
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. |
Personal
Property
Movable property. Includes furniture, automobiles, equipment, cash
and stocks. Opposite of real property that is permanent (like land).
|
Personal
Representative
Another name for an executor or administrator. |
Pour
Over Will
A short will often used with a living trust. It states that any
assets left out of your living trust will become part of (pour over
into) your living trust upon your death. |
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. |
Probate
The legal process of validating a will, paying debts, and distributing
assets after death. |
Probate
Estate
The assets that go through probate after you die. Usually this includes
assets you own in your name and those paid to your estate. Usually
does not include assets owned jointly, payable-on-death accounts,
insurance and other assets with beneficiary designations. Assets
in a trust also do not go through probate. |
Probate
Fees
Legal, executor, and appraisal fees and court costs when an estate
goes through probate. Probate fees are paid from assets in the estate
before the assets are fully distributed to the heirs. |
Qualified
Domestic Trust (QDOT)
Allows a non-citizen spouse to qualify for the estate tax marital
deduction. |
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. |
Qualifying
Subchapter S Trust (QSST)
Trust that meets certain IRS qualifications and is allowed to own
Subchapter S stock. |
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. |
Real
Property
Land and property that is permanently attached to land (like a building
or a house). |
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.
|
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. |
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). |
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.
|
Separate
Property
Generally, all assets you acquire prior to marriage and assets acquired
by gift or inheritance during marriage. |
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." |
Settle
an Estate
The process of handling the final affairs (valuation of assets,
payment of debts and taxes, distribution of assets to Beneficiaries)
after someone dies. |
Settlor
See "Grantor." |
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. |
Special
Needs Trust
Allows you to provide for a disabled loved one without impairing
their access to government benefits. |
Spendthrift
Clause
Protects assets in a trust from a beneficiary’s creditors. |
Spouse
Husband or wife. |
Stepped-up
Basis
Assets are given a new basis when transferred by inheritance (through
a will or trust) and are re-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. |
Surviving
Spouse
The spouse who is living after one spouse has died. |
Survivor’s
Trust
See "A Trust." |
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. |
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.
|
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.) |
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. |
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. |
Testamentary
Trust
A trust in a will. Can only go into effect at death. Does not avoid
probate. |
Testate
One who dies with a valid will. |
Title
Document proving ownership of an asset. |
Transfer
Tax
Tax on assets when they are transferred to another. The estate tax,
gift tax and generation-skipping tax are all transfer taxes. |
Trust
An entity that holds assets for the benefit of certain other persons
or entities. |
Trust
Company
An institution that specializes in managing trusts. Also called
a corporate trustee. |
Trustee
Person or institution who manages and distributes another’s
assets according to the instructions in the trust document. |
Trustor
See "Grantor." |
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. |
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. |
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. |
Unfunded
Your living trust is unfunded if you have not transferred (i.e.,
retitled) assets into it. |
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.
|
Will
A written document with instructions for disposing of assets after
death. A will can only be enforced through the probate court. |
