| A |
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| Administrator |
The court appoints an administrator to settle the estate of a person who dies without a will or with a will that does not designate an executor. |
| Advance Medical Directive |
An advance medical directive is a document that provides instructions concerning a person’s healthcare if the person cannot give those instructions. There are two different types of advance medical directives. The first is a living will that gives instructions concerning a person’s healthcare if the person is dying. The second is a medical or healthcare power of attorney that appoints an agent to make healthcare decisions for a person who is incapable of making these decisions. Frequently, an advance medical directive will include both a living will and a medical power of attorney but need not be combined into one document. |
| Ancillary administration |
This refers to an additional probate in another state, which is required when the decedent owns real estate in state outside his or her state of domicile and not titled in the name of a revocable trust. |
| Annual Exclusion |
This is the amount you can give someone each year without having to file a gift tax return or pay a gift tax. The amount currently is $12,000 per recipient ($24,000 if married). The amount of tax-free gifts is tied to inflation and may increase from year to year. |
| Applicable exclusion amount |
The Applicable exclusion amount is the amount that you can give away during your life or at your death without paying a federal gift or estate tax. Under existing law, this amount is $1 million in 2002 and 2003 and stays at that amount for gift tax purposes. For estate tax purposes, this amount increases to $1.5 million in 2004 and 2005, $2 million in 2006 and 2007, and $3.5 million in 2009. The estate tax is scheduled to be repealed in 2010 and be reinstated in 2011 and the applicable exclusion amount is scheduled to decrease back to $1 million. |
| C |
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| Community property |
This refers to assets a husband and wife acquire jointly during marriage if he or she live in one of the eight community property states, including California, Texas, Nevada and Arizona. Each spouse owns half of the assets in the event of divorce or death. |
| Conservator |
A conservator or guardian is a person 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. |
| Credit Shelter Trust |
A credit shelter trust is a trust designed to use the decedent’s Applicable exclusion amount, but retain the assets in trust for the benefit of a surviving spouse. |
| Crummey Trust |
This is a form of an irrevocable trust, discussed below. |
| D |
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| d(4)(a) Supplemental or Special Needs Trust. |
The so-called “d(4)(a)” supplemental or special needs trust is designed to hold the assets of a disabled person. The assets in a d(4)(a) trust are not considered countable resources for determining the beneficiary’s SSI or Medicaid eligibility. The trust must be: (1) irrevocable, (2) established for a disabled person under age 65, (3) created by the disabled person’s parents, grandparents, guardian, or by a court, and (4) required at the disabled person’s death to repay the state any assets remaining in the trust up to the amount paid under the Medicaid program for the disabled person. |
| d(4)(c) Supplemental or Special Needs (“Pooled”) Trust |
Congress authorized the creation of d(4)(c) supplemental or special needs trusts with the assets of a disabled person. The assets in a d(4)(c) trust are not considered countable resources for determining the beneficiary’s SSI or Medicaid eligibility. The trust must be: (1) created by and managed by a nonprofit organization, (2) maintained in a separate account for each beneficiary, (3) created by the disabled person, the disabled person’s parents, grandparents, guardian, or by a court, and (4) required at the disabled person’s death to repay the state any assets remaining in the disabled person’s account up to the amount paid under the Medicaid program for the disabled person, or to leave these assets in the trust for the benefit of other disabled persons. |
| Disclaimer |
A person may file a written instrument or “disclaimer” with a fiduciary or an appropriate court having jurisdiction, pursuant to which the person refuses to accept a gift or bequest of property. It serves as an effective post-mortem estate planning tool. |
| Disclaimer Trust |
A disclaimer trust is a trust funded by a disclaimer. It is frequently used to permit a surviving spouse to fund a credit shelter trust with that amount of property necessary to limit the size of the surviving spouse’s estate to the Applicable exclusion amount. |
| Durable Power of Attorney |
A durable power of attorney is legal document by which a person, known as the principal, designates another person, known as the agent, to manage the principal’s assets or affairs. Unlike a common law power of attorney, the durable power of attorney does not terminate upon the principal’s incapacity or disability. The durable power of attorney can be effective upon execution (“effective immediately”) or upon the principal’s incapacity or other event (“springing”). Typically, the durable power of attorney over finances or assets is separate from the durable power of attorney over health care, which is also known as an “advance medical directive” (see above). |
| E |
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| Estate |
The assets and liabilities held by the executor or personal administrator or trustee at a person’s death. |
| Estate Tax |
An estate tax is a state or federal tax imposed at the decedent’s death upon the decedent’s property. It is also known as an “inheritance tax” or “death tax.” |
| Executor |
An executor is a person named in a will to settle the decedent’s estate and to distribute the decedent’s estate in accordance with the terms of the decedent’s will. A female executor is known as an “executrix.” An executor is also known as a personal representative. |
| F |
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| Family Limited Partnership or Family Limited Liability Company |
A family limited partnership (FLP) or a family limited liability companies (FLLC) is an entity used to provide for the centralized management and investment of family business assets. They are taxed as partnerships for income tax purposes and may provide significant discounts in valuation for gift and estate tax purposes. They also are effective asset protection devices. |
| Fiduciary |
A fiduciary is a person who manages the assets or affairs of another person and includes executors, administrators, trustees, guardians, conservators, and agents and owes specific duties to that person. The fiduciary is required to follow the instructions contained in the instrument that appointed the fiduciary and the various laws that pertain to fiduciaries, such as the Uniform Prudent Investor Act and the Uniform Principal and Income Act. The fiduciary’s duties include the duty of loyalty, duty to use due care, duty to avoid self-dealing or conflicts of interest, and the duty to provide accurate information. |
| G |
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| Gift Tax |
A gift tax is a federal or state transfer tax imposed on a donor when the donor makes a gift of property. In 2005, $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 is known as the Grantor. This person is also called the creator, settlor, Trustor or donor. |
| Gross estate |
This is the value of an estate before debts are paid. |
| H |
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| Heir |
This is a person who is entitled by law to receive part of your estate. |
| I |
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| Incentive Trust |
This is a trust designed to reward a beneficiary for avoiding certain conduct or engaging in certain conduct. For example, an incentive trust could provide for: (1) a suspension of distributions if the beneficiary is addicted to or abuses drugs or alcohol, or (2) distributions to the beneficiary if the beneficiary obtains an education or is gainfully employed. |
| Irrevocable Life Insurance Trust (ILIT) |
An irrevocable life insurance trust is a trust that cannot be changed (revoked) or canceled once it is established. The trustee owns a policy on the insured’s life and the trust is the beneficiary of the insurance proceeds following the insured’s death. It lets you reduce or even eliminate estate taxes, so more of your estate can go to your loved ones. It also gives you more control over your insurance policies and the money paid from them. |
| L |
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| Living Will |
This is a written document that states you do not wish to be kept alive by artificial means when the illness or injury is terminal. |
| M |
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| Marital deduction |
This is 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 outright or in certain types of trusts 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. |
| Medicaid |
Medicaid is a federally funded needs-based program that provides medical care, including nursing home care, to the aged, blind or disabled who meet resource and income tests. |
| Medicare |
Medicare is a federally funded health care program, primarily for Americans over age 65 covered by Social Security or Railroad Retirement benefits. |
| P |
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| Per capita |
This is a way of distributing your estate so that your surviving descendant will share equally, regardless of their generation. For example, if you have three children and one of them is deceased with two children (i.e., grandchildren), your estate would be divided five ways equally if it passes per capita. |
| Per stirpes |
This is a way of distributing your estate so that your surviving descendants will receive only what their immediate ancestor would have received if he/she had been living at your death. Using the per capita example above, your estate would be divided into three equal shares, with children of the deceased child sharing 1/3 equally. |
| Personal property |
This refers to movable property and includes furniture, automobiles, equipment, cash and stocks. Opposite of real property permanent such as land. |
| Pour over will |
A pour over will is a short-form will often used with a living or revocable 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. |
| Probate |
Probate is the judicial process by which an instrument is proven to be the decedent’s will. It is also frequently used to refer to the judicially supervised and much more complicated administration of the decedent’s estate. |
| Probate fee |
An additional fee is imposed on the value of the estate passing through the probate process. |
| Q |
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| Qualified Domestic Trust (QDOT) |
This form of trust allows a non-citizen spouse to qualify for the marital deduction. |
| Qualified Terminable Interest Property (QTIP) |
A trust that delays estate taxes until your surviving spouse dies so more income will be available to provide for your spouse during his/her lifetime. The QTIP trust requires the trustee to distribute all of the income of the trust to a surviving spouse. It may permit the trustee to make principal distributions only to the surviving spouse. The QTIP trust qualifies for the estate tax marital deduction. You can also keep control over who will receive these assets after your spouse dies. |
| Qualifying Subchapter S Trust (QSST) |
This is one form of trust that meets certain IRS qualifications and is allowed to own Sub-chapter S corporation stock. |
| R |
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| Revocable Trust |
A revocable trust or “living” trust is a trust designed to dispose of the decedent’s assets at the decedent’s death to avoid the probate process. It is a very effective will substitute and particularly useful in jurisdictions that have a complicated and burdensome probate process. |
| S |
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| Spendthrift Clause |
A spendthrift clause is a provision in trust designed to protect the trust assets from the beneficiary’s creditors. |
| Stepped-up basis |
Under current law, assets are given a new tax basis when transferred by inheritance (through a will or trust) and are re-valued as of the date of the owner’s death or at a special valuation date. If an asset has appreciated above its basis, 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.” |
| Supplemental or Special Needs Trust |
A supplemental needs trust is a trust created for the benefit of a beneficiary who receives SSI or Medicaid. The trust is drafted to provide discretionary benefits to the beneficiary, but not to be considered a countable resource for the beneficiary’s SSI or Medicaid eligibility. A third party supplemental or special needs trust is one created for the benefit of a disabled person with the assets of someone other than the disabled person. |
| T |
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| Trustee |
A trustee is a person who administers a trust in accordance with the terms of the trust agreement. |
| W |
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| Will |
A will is a written document with instructions for disposing of assets after death. A will can only be enforced through the probate court. |
