Estate Planning Glossary

Legacy Assurance Plan

Estate Planning Glossary

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The following terms, listed here in the estate planning glossary, are commonly used in a Trust Agreement. They may have special meanings under the law.  The most often applicable definition is here given here in this Estate Planning Glossary to assist you in understanding and interpreting the provisions of the Trust. This is not a part of the Trust Agreement.

A-B Trust back to top

A trust specially constructed to allow couples to reduce or avoid estate taxes. The initial trust, upon the death of the first spouse, triggers the creation of a “B Trust,” which permits the couple to retain both spouses’ estate tax exclusion amounts. This type of trust is also known as a bypass trust or credit shelter trust

Abstract of Trust

An abbreviated version of a living trust document, which leaves out details of what is in the trust and the beneficiaries’ identities. An abstract of trust may be shown to a financial organization or other institution to prove that the Grantors have established a valid living trust, without revealing specifics that the Grantors want to keep private. Also called a “certification of trust” in some states.

Administrator

The person appointed by a Probate Court to distribute the assets of a deceased person who died without a will, or died with a will that failed name someone to serve as personal representative.

Advance Directive

A legal document that issues directions regarding an individual’s desires regarding the withholding or cessation of life-sustaining medical treatment. This document governs in the event of the onset of an incurable or irreversible condition that cause death in a short period of time and the person no longer has the ability to make his/her own medical decisions. Also known, is some locations, as a living will.

Amendment

An addition that somehow changes or modifies a previously composed and executed document. A revocable living trust is subject to amendment so long as the creator(s) is/are living; this means the creator(s) may change the provisions any time, as long as the creator(s) is/are alive and not incapacitated.

Attorney-in-Fact

The person authorized to act as an agent of another under a written power of attorney document.  Under the power of attorney document, the person who signs the document (who is also known as the principal) grants certain powers to the attorney-in-fact. Those powers may be very broad or very narrow, and are based upon the express language of the power of attorney document.

Beneficiary back to top

An individual (or entity) who receives the benefits of an agreement, such as a revocable living trust. There are two kinds of beneficiaries: income beneficiaries and remaindermen. Income beneficiaries are entitled to receive the income generated by the Trust. Remaindermen and beneficiaries who are entitled to receive the remainder of the Trust after the specific distributions have been made.

Bypass Trust

See A-B Trust

Child/Children back to top

In a Trust, these terms refer to the legal children of the creators, which includes their natural born children, as well as children legally adopted by the creators.

Community Property

Property owned in common by a husband and wife. Each of the spouses owns an undivided one-half interest in the property as a result of their marital status. The rules of community property, which consider all assets accumulated during the marriage to be owned 50-50 by each spouse, apply in only a fraction of the states. The majority of states follow the common law systems, which says that each spouse owns what he/she earns.

Conservator

A court-appointed individual who is legally responsible for overseeing the financial affairs of a person the court has deemed incapacitated. In some places, this individual is called the guardian of the estate.

Creator

As used herein, creator refers to the individual who creates the trust.  He or she may also be referred to as Grantor or Trustor.

Credit Shelter Trust

See A-B Trust.

Death Taxes back to top

Taxes triggered by the death of an individual. The federal government has an estate tax but no inheritance tax. Many states collect additional taxes in the form of an inheritance tax, and some have both an inheritance tax and a state estate tax.

Decedent

A deceased person.

Descendant

The persons who are in the Grantor’s bloodstream. This includes the children of the Grantor, their children, grandchildren, grandchildren’s children, and so on.

Dower and Courtesy

Traditional terms for surviving spouse’s right to a pre-set portion of the deceased spouse’s estate. Dower refers to a wife right to take from her husband’s estate, and curtesy refers to a husband’s right to take from his wife’s estate. Most states have abolished the concepts of dower and curtesy, and have adopted elective share statutes dictating the rights of a spouse to take from his/her spouse’s estate. 

Durable Power of Attorney

A specific type of power of attorney document that remains valid an in effect even after the maker becomes incapacitated. (Powers of attorney that are not durable automatically expire upon the maker’s incapacity.)

Elective Share back to top

The set portion of a person’s estate that his/her spouse is entitled to receive under state law. An elective share ranges from one-third to one-half in most states. In some states, however, the amount varies based upon whether the couple has minor children or based upon the length of the marriage. In most states, if the deceased spouse left a distribution to the surviving spouse, that spouse must choose either that distribution or his/her statutory elective share. Also called spousal share or statutory share.

Enhanced Life Estate Deed

See “Ladybird” Deed

Escheat

The result of an individual dying without anyone qualified to receive his/her property. This can occur if a person dies intestate but without heirs, or dies with a will but where none of the named beneficiaries are qualified to receive the assets. In this circumstance, the decedent’s property is said to escheat, which means that its ownership reverts back to the state.

Estate Taxes

Taxes imposed by the government on property as it passes from a decedent to the decedent’s beneficiaries. All of a decedent’s property is subject to federal estate tax. The federal estate tax only applies to estate whose value exceeds a certain minimum dollar amount. Property left to a surviving spouse (if he/she is a U.S. citizen) or a tax-exempt charity is exempt from federal estate taxes. Only a fraction of the states impose a state estate tax.

Executor

See Personal Representative.

Executrix

Female gender form of executor. See Personal Representative.

Fiduciary back to top

A person who holds and controls assets for the benefit of another. The person’s status as a fiduciary imposes special duty to act in accordance with a heightened level of care, also known as “fiduciary responsibility.”

First Death

As used in the Declaration of Trust, this refers to the death of the first spouse.

Grantor back to top

As used herein, the grantor is the creator of the trust and the individual(s) who has the power to amend or revoke the declaration of trust. Also, in the case of a trust, sometimes called a trustor or settlor.

Guardian

A court-appointed individual legally responsible for the person and/or estate of a minor child or a mentally incapacitated adult. In some states, the term guardian refers to the person responsible for personal decision-making, and the term conservator refers to the person responsible for financial and asset-management decision-making.

Guardian of the Estate

See Conservator

Health Care Agent back to top

Person authorized to make health care and medical decisions on behalf of another under the terms of a Power of Attorney for Health Care.

Heir

A person who is appointed by law to succeed another person in ownership of property. Frequently, however, the term applies to a successor to property either by law or through a will.

Husband

As used herein, the term husband refers to the male spouse of the creators.

Incapacity back to top

The inability of a person to make decisions for him/herself. This term is defined in detail in the Trust Agreement, Article X, Paragraph C. Also referred to as incompetency.

Income

This refers to the return, in money, on business or investment. Trust income is the income derived from the assets and investments held by the Trust.

Income Beneficiary

An individual entitled to receive income from the Trust assets until some event which expressly terminates the right to continue receiving income. He or she may or may not thereafter be entitled to additional principal sums.

Incompetency

See Incapacity.

Inheritance Taxes

Taxes that many states impose on the individuals or entities that inherit property from a decedent’s estate. The taxes are calculated based upon a statutory tax rate applied to the value of the inherited property. The beneficiary that inherits the property, not the decedent’s estate, is liable for paying the inheritance taxes.

Initial Trustee(s)

This term as used in the declaration of trust refers to the first individual(s) or entity(ies) appointed to control the assets of the trust. The creator(s) will appoint this trustee. Typically, it is the creator(s) of the trust.

Inter Vivos Trust

Another name for a living trust. Inter vivos is Latin for “between the living.”

Intestate

To die without a valid will.

Issue

Children (direct lineal descendants) of the person referred to. This includes natural-born children and legally adopted children.

Joint Tenancy back to top

A type of ownership in which two or more people own a property collectively. Under joint tenancy, when one owner dies, the remaining surviving owners automatically take the deceased owner’s share.

“Ladybird” Deed back to top

A nickname for a type of real estate transfer technically known as an Enhanced Life Estate Deed. In this deed, the owner of a property names a beneficiary to take the property upon his/her death, while retaining a life estate in him/herself. In addition, the owner also retains a power of appointment that allows him/her to change the beneficiary at any time or revoke the transfer entirely. The owner also retains the right to sell the property without the beneficiary’s permission. Some states do not recognize this as a valid real estate transfer.

Letters Testamentary

A document given by a probate court to an estate’s personal representative, which authorizes the personal representative to settle the decedent’s estate, either according to the decedent’s will or the state’s intestacy laws.

Life Estate

A legal arrangement where an individual (called the life tenant) holds the right to possession and income from a property during his/her lifetime. The life tenant may not sell the property without the written permission of the remaindermen.

Life Tenant

One who holds a property under a life estate.

Living Will

See Advance Directive.

Omitted Heir back to top

A child or a spouse not mentioned in the decedent’s estate plan and whom a court concludes was accidentally overlooked by the decedent. If the court concludes that the decedent forgot this heir, then that person is entitled to take from the decedent’s estate the amount he/she would have received if the decedent had died without a will. Also known as a pretermitted heir.

Passive Investing back to top

An investment strategy involving limited regular or ongoing actions. In a Trust, a passive investment refers to an investment where the trustee has no initial, on-going or future management responsibilities. Passive investments include such items as bank savings accounts, limited partner interests, stocks and bonds, etc.

Pay-on-Death (POD) Designation

A method transferring an asset without probating that asset by designating a beneficiary to receive the asset upon the owner’s death. Typically, most POD designations are revocable during the owner’s lifetime. The beneficiary does not have a vested interest in the asset until the owner dies. Upon proof of the owner’s death, an asset is transferred to the POD beneficiary without requiring probate. This designation is generally available for use on bank account, bonds, retirement accounts and, in some states, vehicles and securities.

Per Capita

Latin for “by the heads.” A phrase designating that each of a named group beneficiaries should receive an equal portion of the decedent’s estate. For example, if a decedent (who leaves his/her estate “to my children per capita) has three children, each of whom has two children of his/her own, and decedent’s middle child predeceases him/her, then upon decedent’s death, the eldest and youngest children each receive ½ of the decedent’s estate, and the middle child’s family receives nothing.

Per Stirpes

Latin for “by the branch.” This designates that each of a decedent’s children’s families (or branches) are entitled to receive an equal share of the decedent’s estate. For example, if a decedent (who leaves his/her estate “to my children per stirpes) has three children, each of whom has two children of his/her own, and decedent’s middle child predeceases him/her, then upon decedent’s death, the decedent’s eldest and youngest children each receive 1/3 of the estate, and the two children of the middle child split the remaining one-third (or 1/6 each.) Also known as right of representation distribution.

Personal Property

Property other than real estate, including cash, cars, stocks, household furnishings, clothing, etc.

Personal Representative

A person named by in will by the creator, (or appointed by a court,) to carry out the directions and requests in the will, and to dispose of the property according to the provisions of the will. Also sometimes referred to as an executor or executrix.

Pretermitted Heir

See Omitted Heir.

Pour-Over Will

A special will which accompanies the creation of a trust and serves to pass into the trust property not funded into trust during the Grantor’s lifetime, as well as to nominate guardian of the Grantor’s minor children, if applicable. In some instances, the will may be used to pass specific estate assets to specific individuals.

Power of Appointment

A power granted to another by a deed or a will to name the person who will receive a property upon the owner’s death. For example, in the case of a Ladybird Deed, the owner retains a life estate to remain in control of the property during his/her lifetime, and also retains a power of appointment in him/herself, in order to maintain the power to change the designation of who will receive the property upon the owner’s death.

Power of Attorney:

A document giving another person the legal authority to act on behalf of the maker. In this arrangement, the maker is called the principal, and the person receiving this authority is called the attorney-in-fact. See also Durable Power of Attorney.

Principal

(1) In reference to financial or monetary terms, this is the asset base of the trust. It includes all assets of the trust whether in cash or in kind. (2) In reference to an individual, this is the person who delegates certain authorities to another, who is called the agent. For example, in a power of attorney document, the maker of the document is the principal and the person to whom the powers are delegated is the agent.

Probate

The court process following a person’s death where a court determines the authenticity of the decedent’s will, appoints someone to handle the decedent’s affairs, inventories the decedent’s property, oversees the payment of the decedent’s debts and taxes, identifying his/her heirs, and oversees the distribution of the deceased person’s property according to the will, if a valid one exists, or else according to state law.

Quasi-Community Property back to top

A form of property ownership by a married couple occurring when a couple moves to a community property state from a non-community property state. In that circumstance, the property the couple acquired together in the non-community property state may be considered quasi-community property, which means that the property is treated by the courts the same as community property when one spouse dies or if the couple divorces.

Real Property back to top

Real estate. This includes the land and anything permanently attached to it.

Remainderman

After the income beneficiary has received his or her income and the event terminating that income-right has occurred, the Remainderman receives the balance of the asset(s) in the trust or trust share.

Revocable

This means the trust can be changed and/or eliminated in whole or in part, and the assets returned to the individual(s) titled as they were before being transferred to the trust. A living trust is revocable only as long as the Grantor(s) is/are alive and not incapacitated.

Right of Representation

See Per Stripes.

Rule Against Perpetuities

A complex and technical legal rule that disfavors and prevents property from being held perpetually in trust. The rule places a limit on the amount of time that a property can be controlled after the death of the owner. The rule exists to limit a decedent’s power to designate gifts for very remote descendants and invalidates non-compliant distributions.

Self-proving Will back to top

A will specifically crafted and designed in a way that allows a probate court to accept it as the true will of the decedent without requiring the personal representative to go through the process of proving the will. (This process requires the witnesses to testify and the court to accumulate other evidence that supports the conclusion that the will submitted to the court is, in fact, the decedent’s true will.) In many states, a will is self-proving when two witnesses attest under penalty of perjury that they observed the maker sign it and that he/she told them it was his/her will. Some states also require notarization of the signatures.

Separate Property

In community property states, property entirely owned and controlled by one spouse during a marriage. If the couple divorces, separate property is not divided under the state’s property division laws, but is kept by the spouse who owns it. Separate property includes all property that a spouse obtained before marriage, through inheritance or as a gift. Property that can be traced back to another property that was separate property (for example, the proceeds of a rare painting owned separately by one spouse before the marriage) is also separate property.

Settlor

See Grantor. See also Creator.

Small Estate
See Summary Probate.

Special Needs Trust

A specialized legal document designed to benefit an individual who has a disability. These trusts enables persons with disabilities, or chronic or acquired illnesses, to have assets held in Trust for their benefit, but outside their control. If properly drafted, these trusts’ assets are not considered countable assets for purposes of qualification for certain governmental benefits. Also called a Supplemental Needs Trust.

Spendthrift Provision

A provision in the Trust prohibiting using the anticipated trust benefits as a basis for making a loan to the income beneficiaries or remaindermen. The provision essentially prevents beneficiaries from spending their benefits before they receive it.

Spousal Share

See Elective Share.

Springing Durable Power of Attorney

A durable power of attorney document that only becomes effective upon the maker’s incapacity. (The required proof of incapacity is designated in the document but often requires proven by two doctors’ examination and attestation.)

Statutory Share

See Elective Share.

Subsequent Trustee

Upon the death, incapacity, unwillingness, or inability of any acting trustee, a new trustee, named in the declaration of trust assumes immediate control. This new trustee is the subsequent trustee.

Summary Probate

A comparatively simple and abbreviated probate proceeding available for estates that meet the state law’s statutory definition of a “small estate.” The process consists primarily of the filing of a relatively brief (typically 1 to 4 pages) affidavit with the probate court. The statutory caps on qualifying for using a small estate probate procedure range anywhere from $1 to $100,000, and some states impose additional restrictions, such as excluding estates contain real estate from qualifying.

Supplemental Needs Trust

See Special Needs Trust.

Surviving Creator

The surviving spouse after the death of the first spouse.

Taking Against the Will back to top

A procedure under state law giving the surviving spouse the right to demand a certain statutorily-mandated share of the deceased spouse’s property. See also Elective Share.

Tenancy by the Entirety

A specific type of real property ownership where both owners have the right to enjoy the entire property, and when one spouse dies, the surviving spouse gets title to the property (called a right of survivorship.) It is similar to joint tenancy, except that it is restricted to married couples and is available in only about ½ of the states.

Tenancy in Common

A method of property ownership where each owner can leave his or her interest upon death to the beneficiaries he/she chooses. In some states, two people are presumed to own property as tenants in common unless they have a written document proving otherwise.

Testator

A testator is an individual who has written a specific will. The individual who signs the will and under whose direction it was written, is known as a testator.

Testatrix

The female gender form of Testator.

Transfer-on-Death Deed

A real estate deed (warranty, quit claim, etc.) that names a beneficiary who is to receive the subject property upon the death of the owner. A valid Transfer-on-Death Deed triggers the transfer upon proof of the owners passing and avoids probate. Transfer-on-Death Deeds are recognized by only about ¼ of the states in the USA.

Transfer-on-Death (TOD) Designation

A method transferring an asset without probating that asset by designating a beneficiary to receive the asset upon the owner’s death. Typically, most TOD designations are revocable during the owner’s lifetime. The beneficiary is not considered to have a vested interest in the asset until the owner dies. In some states, an owner of real estate may pass that property through the use of Transfer-on-Death Deed.

Trust

The legal instrument including the appendices that direct the trustee as to his or her duties and powers.

Trustee

The individual or individuals designated in the declaration of trust and charged with the fiduciary responsibility to carry out the terms and provisions of the creators as stated in the trust.

Trustor

See Grantor. See also Creator.

Wife back to top

The female spouse of the creators.

Estate Planning Glossary from Legacy Assurance Plan

It is Leagacy Assurance Plan’s intention to provide this Estate Planning Glossary as a tool for the reader to understand the terminology as it pertains to Estate Planning.

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