Glossary Of Estate Planning Terms
ADMINISTRATOR/ADMINISTRATRIX: The personal representative who represents the decedent during the probate process where an EXECUTOR is not named in the Willor when the decedent died without a Will or where the EXECUTOR named in the Will failed to qualify. If male or a corporation, the personal representative is known as an "ADMINISTRATOR," if female as "ADMINISTRATRIX."
ANNUAL EXCLUSION: A federal gift tax exclusion allowing a donor annually to make gifts of $11,000 per donee. There are no limits to the number of donees. In other words, a couple with two children could give a total of $44,000 a year to their children tax free (each spouse could give each child $11,000 per year). In order to qualify for the annual exclusion, the gift must be a "present interest" which means the gift is available immediately to the donee as opposed to one not available until the future or one requiring the consent of some other person.
APPLICABLE EXCLUSION: A UNIFIED CREDIT is allowed against the federal estate tax of a decedent. The amount of the UNIFIED CREDIT is the amount needed to shelter the APPLICABLE EXCLUSION from federal estate or gift tax. The APPLICABLE EXCLUSION is increasing each year until 2009 as follows: For deaths occurring or gifts made in 2002 and 2003, the APPLICABLE EXCLUSION is $1,000,000; for 2004 and 2005, $1,500,000; for 2006 to 2008, $2,000,000; for 2009, $3,500,000. The estate tax is scheduled for repeal in 2010. The APPLICABLE EXCLUSION is also known as the EXEMPTION EQUIVALENCY or the CREDIT SHELTER AMOUNT. Also see UNIFIED CREDIT.
BENEFICIARY: A person who will be, or is, a recipient of benefits from a Will, an estate or a trust.
BEQUEST: A gift of personal property made under a Will.
BYPASS TRUST: Also called a FAMILY TRUST or CREDIT SHELTER TRUST. This is usually a testamentary trust (meaning it is created under a Will) that is usually for the benefit of the surviving spouse and/or the TESTATOR'S children. The amount passing to the BYPASS TRUST should generally be the amount of the APPLICABLE EXCLUSION with the excess property over the APPLICABLE EXCLUSION passing to the surviving spouse under the MARITAL DEDUCTION, so that no estate taxes are due at the death of the first spouse. As the APPLICABLE EXCLUSION AMOUNT increases over the next several years, it may be desirable to cap the amount passing to the BYPASS TRUST to avoid disinheriting the surviving spouse.
CO-OWNERSHIP OF PROPERTY: An asset in the names of two or more persons. Real property may be co-owned under any of the following types of ownership:
1. Joint tenancy with rights of survivorship. Each joint tenant has one and the same interest as the other, accruing by one and the same conveyance, commencing at one and the same time, and held by one and the same undivided possession. The primary incident of joint tenancy is survivorship, by which the entire tenancy on the death of any joint tenant remains to the survivors, and at length to the last survivor.
2. Tenancy in common. A form of ownership whereby each tenant (i.e., owner) holds an undivided interest in property. Unlike a joint tenancy or a tenancy by the entirety, the interest of a tenant in common does not terminate upon his or her prior death (i.,e., there is no right of survivorship). Assume, for example, B and C acquire real estate as equal tenants in common, each having furnished one-half of the purchase price. Upon B's prior death, his one-half interest in the property passes to his estate or heirs.
3. Tenancy by entirety. A tenancy which is created between a husband and wife and by which together they hold title to the whole property with right of survivorship so that, upon death of either, the surviving spouse takes the whole. It is essentially a "joint tenancy," modified by the common-law theory that husband and wife are one person, and survivorship is the predominant and distinguishing feature of this type of ownership.
CREDIT SHELTER AMOUNT: See APPLICABLE EXCLUSION.
CREDIT SHELTER TRUST: See BYPASS TRUST.
CRUMMEY TRUST: A trust which is structured so that certain current gifts to the trust qualify for the annual $10,000 gift tax exclusion in spite of the fact that the trust provides for deferred distributions of income and principal to the trust beneficiaries. An annual $10,000 gift tax exclusion is allowed for gifts of present interests. But no exclusion is allowed for gifts of a future interest, i.e. an interest which the donee can't use, possess or enjoy until some future date. A provision in a CRUMMEY TRUST giving the beneficiaries the power to demand immediate possession of principal or income gives rise to a present interest even if the trust otherwise provides for accumulation of income and deferred distribution of principal.
DEVISE: A gift of land made under a Will.
DISCLAIMER: An unqualified refusal by a person to accept an interest in property when another has attempted to gift or bequeath such property to them; the disclaimer must be in writing and meet certain other requirements to be effective for federal purposes.
DURABLE GENERAL POWER OF ATTORNEY FOR ASSET MANAGEMENT: An instrument authorizing another person to act as your agent in handling your financial affairs should you become incapacitated.
DURABLE POWER OF ATTORNEY FOR HEALTH CARE: An instrument authorizing another person to act as your agent to make health care decisions on you behalf if you are not able to make such decision or give informed consent.
EXECUTOR/EXECUTRIX: The man/corporation or the female named in the Will to represent the decedent and his or her estate during the probate process.
FAMILY TRUST: Same as BYPASS TRUST defined above.
GENERATION SKIPPING TRANSFER TAX: The federal tax imposed on transfers from a donor to a transferee who is two or more generations younger than the donor.
GROSS ESTATE: The GROSS ESTATE refers to all of a decedent's property which is includible in his estate for federal estate tax purposes. The GROSS ESTATE includes all property, real or personal, tangible or intangible, in which the decedent has an interest at the time of his or her death. This includes both PROBATE and NON-PROBATE PROPERTY.
GUARDIAN: For estate planning purposes, a person or persons named in the decedent's Will to have custody of and to care for the decedent's minor child or children.
INTER VIVOS TRUST: A trust created during the life of the creator or grantor, which becomes effective during the grantor's life.
INTESTATE: To die without a valid Will.
LAST WILL AND TESTAMENT: The instrument which ultimately fixes the disposition of real and personal property at the death of the TESTATOR.
LETTER OF AUTHORITY: DURABLE POWERS OF ATTORNEY may be placed in the hands of a neutral party for safekeeping, and the LETTER OF AUTHORITY specifies the terms and conditions under which the party holding the documents are to release the documents.
LIVING TRUST: Generally, it is an INTER VIVOS TRUST of which the grantor is the sole or primary beneficiary and for which the grantor retains the right, by revocation, to reacquire the trust properties.
LIVING WILL: A document which allows a person to specify in writing how much medical care he or she would like to receive if he or she becomes critically or terminally ill and cannot give informed consent, and there is no reasonable chance of that person being restored to a state of meaningful health.
MARITAL DEDUCTION: An unlimited deduction against federal estate taxes is allowed for decedent's property passing to the decedent's surviving spouse. The marital deduction does not save on estate taxes, rather it merely postpones estate taxes until the death of the decedent's surviving spouse. However, the surviving spouse can offset the marital deduction bequest to the extent of the unused portion of the surviving spouse's APPLICABLE EXCLUSION.
NON-PROBATE PROPERTY: Property that passes by contract (i.e. life insurance) or passes by operation of law property owned by joint tenants with rights of survivorship). The disposition of this type of property is not governed by a person's Will.
PER CAPITA: The method of dividing a BEQUEST where the distributees take as individuals and not taking by their right of representing their ancestor as under PER STIRPES. For example, in a per capita system, if you had two children, and one child (A) had two children (your grandchildren) and your other child (B) had four children (your grandchildren), and both of your children predeceased you, then all of your grandchildren would share equally in your estate, each taking a one-sixth (1/6) share.
PER STIRPES: The method of dividing a BEQUEST where a class or group of distributees (such as your grandchildren by a deceased child of yours) takes the share which their deceased parent (a deceased child of yours) would have been entitled to; such distributees taking by their right of representing such ancestor. For example, if you had two children, and one child (A) had two children (your grandchildren) and your other child (B) had four children (your grandchildren), and if both of your children predeceased you, then A's children would each take one-fourth (1/4) of your estate, being their share of their parent's share of your estate [1/2 ¸ 2 children = 1/4]. B's children would each take one-eighth (1/8) of your estate, being their share of their parent's share of your estate [1/2 ¸ 4 children = 1/8].
PROBATE: Generally, this term includes all matters and proceedings pertaining to the administration of an estate. Specifically, it is the Chancery Court procedure by which a Will is proved to be valid or invalid.
PROBATE ESTATE: The PROBATE ESTATE consists of those assets which will be transferred under the terms of the owner's Will or which are subject to local intestacy law if there is no Will. Only probate property is subject to the terms of the Will, as opposed to NON-PROBATE PROPERTY.
Q-TIP TRUST: Qualified terminable interest property (QTIP) is a type of interest in property passing from one spouse to the other spouse which qualifies for the MARITAL DEDUCTION only if (1) the surviving spouse will receive all of the income from the property for the duration of his or her life, and (2) no person has the power to appoint the property to anyone other than the surviving spouse. A QTIP TRUST qualifies for the MARITAL DEDUCTION only if the EXECUTOR of the deceased spouse's estate elects to claim this deduction on the federal estate tax return.
TAXABLE GIFT: Payment of gift taxes during a donor's lifetime can be caused either because (a) the gift itself is large enough to use up the donor's available UNIFIED CREDIT, or (b) because when the gift is added to the donor's prior taxable gifts, the total is large enough to use up the donor's remaining UNIFIED CREDIT. Upon the death of the donor, all prior taxable gifts are brought back into the estate when calculating the federal estate tax under the unified estate and gift tax law. However, the estate is given a credit for prior gift taxes actually paid. The impact of this unified estate and gift tax system is to include these gifts in the estate at a higher rate than they were originally taxed at the time of the gift (due to the progressive estate and gift tax rates).
TESTATE: To die with a valid Will.
TESTATOR/TESTATRIX: A man/woman who has made a Will.
TRUSTEE: A person or institution that holds the legal title to property for the benefit of someone else who is the beneficial owner.
UNIFIED CREDIT: A credit is allowed against federal gift and/or estate taxes which may be used during the lifetime of the taxpayer or at death. Only one credit per person is allowed, and so no credit would be available to offset estate taxes if the credit has been fully claimed against lifetime transfers. The amount of the credit is the amount needed to shelter assets of the amount of the APPLICABLE EXCLUSION. See APPLICABLE EXCLUSION.
