There are a lot of terms that get tossed around in estate planning. Most often, they are unfamiliar words with ambiguous meanings.
Lawyers use legalese as a method of clarifying the law in a professional common language.
Sometimes, it all gets a bit confusing for the uninitiated, leaving you with more questions than answers.
Here are some of the most commonly encountered terms and phrases used in estate planning.
An agreement made by couples in which each party creates a “Trust A” and a “Trust B” for the estate. When a spouse dies, their “Trust A” wishes pass the estate on to the surviving spouse. When the surviving spouse dies, that spouse’s “Trust B” becomes active in passing on the estate to the beneficiaries named by the second spouse, regardless of the first spouse’s “Trust B” requests.
A reduction in the amount awarded to a beneficiary due to the outstanding debts of an estate (i.e. the abatement of taxes on an inherited estate).
The act of verbally or nonverbally receiving something, or adhering to terms or conditions with the implied right of rejection.
The collection of the deceased’s assets for liability settlement and distribution to beneficiaries.
A court appointed individual in charge of managing an estate where an executor is absent.
A written statement created under oath that is admissible by the court as evidence.
Amount annually given by an individual free of federal gift taxes and IRS reporting. This amount is not included in the federal gift tax exemption threshold.
A sum of money that is paid monthly or annually to a beneficiary, rather than paid out in a single lump-sum.
Applicable exclusion amount
(See “estate tax exemption amount”).
The original value of the property, plus the appreciated (increased) value of the property over time of ownership. Deducting community expenses from this figure gives the new figure, which is the total value of the property to be shared equally between spouses.
A reason (medical, academic, supportive, or emergent) that is valid for withdrawing from a trust.
Under the power of attorney, this individual handles the financial affairs of the incapacitated or the deceased.
The total amount of property that is used to calculate a surviving spouse’s estate.
Someone who is named in a will or a trust to inherit part or all of an estate.
Business personal property
All interests in business, with the exception of real estate. (i.e. intellectual property, partnerships, shares, etc.)
The “B Trust” in an AB Trust; bypasses the estate tax for the estate of the deceased that is being passed to the surviving spouse. (See “AB trust”).
Charitable lead trust
A trust that distributes to a named charity for the time set by the terms of the trust; the remaining assets of the trust are passed to the beneficiaries at the end of the agreed trust time period.
Charitable remainder trust
A trust that distributes to the named beneficiaries for the time set by the terms of the trust; the remaining assets of the trust are passed to the named charity in the trust agreement.
The process of legally amending a will.
Common law partnerships
The act of living together, presenting as married, or intending to marry in order to be legally considered a partnership.
Common law property states
States in which property is shared equally between a marriage, regardless of who is named on the title or deed.
Community property states
States in which property is divided by title or deed in which the owner is explicitly named (see “quasi-community property”).
Community property with right of survivorship
A community property functioning as a joint tenancy to include spousal inheritance.
An individual appointed by the court to care for the property of someone who is incapacitated.
Credit shelter trust
(See “bypass trust” and “AB trust”).
An irrevocable trust that allows for beneficiary withdrawal of all or some of the assets for a small period of time following a contribution.
The rights of the surviving husband.
A deceased individual.
Relations by blood or adoption (i.e. children, grandchildren)
Deferred marital property
Property acquired before marriage in a community property state (see “quasi-community property”).
To renounce or refuse an inheritance; the beneficiary must express full disinterest in the estate.
The rights of the surviving wife.
Durable power of attorney
An individual given the responsibility of controlling the financial affairs and making financial decisions on behalf of the principal.
The property that is owned, minus the assets that are owed; the estate cannot include property that is not owned outright.
The process that creates and establishes a will, trust, or legal document to act as a guide to managing an estate in the case of incapacity or death.
Tax placed on an estate being transferred to the beneficiaries on behalf of the deceased.
Estate tax exemption amount
Exclusion of an enforced estate tax on smaller estates or property transferred to the surviving spouse. (See “credit shelter trust”).
The legal authority that takes control of all property that is included in the estate of a will or trust.
Family limited partnerships
The method of transferring property to children or grandchildren by creating a partnership in business.
A trust to benefit members of the family.
An individual appointed to manage the money or the property of the beneficiaries (i.e. executors, trustees, etc.)
The act of divorcing in foreign countries. This method may be invalid from place to place.
Generation-skipping transfer (GST) tax
Tax on a gift or transfer in a trust to beneficiaries two or more generations after the trust holder.
The federal tax imposed on gifts of property totaling in excess beyond the $5 million annual threshold.
A person who creates and/or distributes to a trust.
A trust in which the grantor retains enough control for the trust to remain exempt from all grantor federal income taxes.
All property owned by the trust grantor or the deceased.
A federal tax exclusion, allowing $5 million in annual generation-skipping transfers.
A person who is named as the caretaker for children in the absence of the parents; can be a physical or financial guardianship, for temporary or lifelong purposes.
Health care power of attorney
The individual appointed to make health care decisions in the case of incapacity.
An individual with entitlement to an estate in the absence of a will (or named beneficiaries).
Earnings from principal (i.e. income, rent, etc.)
Individual retirement account (IRA)
Retirement programs, pension, or 401(k) plans that go directly to the named policy beneficiaries; not subject to probate.
The physical, intellectual, or shared property of the grantor’s estate, as documented by a will or trust, that is divided among the beneficiaries as outlined.
An irrevocable trust with the intention of owning life insurance to be excluded from the total estate at the time of death.
The ownership of patents or copyrights included in an estate.
Interest of beneficiary
The right to receive the income or principal outlined in the terms of a trust or a will where the individual is named as a beneficiary.
The act of dying without a will.
A detailed court account of all assets of the deceased.
A trust that cannot be revoked, amended, changed, or cancelled once it has been enacted.
The share of ownership in a property that is included in the estate; the adjoining tenant will automatically inherit separate share.
In initiating a divorce, legal separation acts as the first step; the legal bond of matrimony is still present, but both parties carry the intent to dissolve the bond.
Someone who is receiving income from a trust or estate for life.
The legal right to an estate property that is granted for the lifetime of the beneficiary; the property of the life beneficiary.
Coverage and funds that go directly to the named policy beneficiaries; not subject to probate.
A revocable trust enacted in life that remains in effect after death.
Limited liability company (LLC)
A business entity that provides limited liability protection to its members. The amount a corporate investor can lose as a result of a lawsuit against the corporation, or other losses; limited liability is limited to the amount of the investor or shareholder’s investment.
Monetary estate, such as cash, savings accounts, checking accounts, shares, stocks, securities, bonds, etc.
A document that controls the property within the trust while the grantor is alive; quickly distributes the estate to the named beneficiaries.
The exemption of property from gift taxes when left to a spouse.
Established to protect the property transferred to a spouse through an AB trust; typically aids in qualifying the transfer of the estate for marital deduction.
A clause of a will or trust that provides each beneficiary the opportunity to contest their inheritance. However, should they be unsuccessful, doing so automatically forfeits their share of the estate.
A trust established with contingencies that will remain in effect following the death of the grantor.
Operation of law
The method of passing assets to beneficiaries, as directed in state law pertaining to the title owner of the property.
An agreement that details what happens to each partner’s share at the time of their death.
Documents that name the beneficiaries that are able to quickly access and receive deeds and vehicle registrations.
Documents that name the beneficiaries that are able to quickly access and receive assets, such as bank accounts and stock holdings.
All estate property (aside from the “liquid assets”), such as retirement accounts, vehicle titles and deeds, jewelry, art, life insurance, etc.
An executor, administrator, or representative body for the estate of the deceased.
Pour over will
Used in kind with a revocable trust to transfer the remainder of an estate from life into the trust after death.
Power of appointment
The power that is given to an individual for the purposes of managing and distributing the property within a trust; typically a beneficiary of the trust, which will set the terms of the “holder’s” ability to keep property, or their legal obligation to distribute the property.
Power of attorney
The appointment of an individual to act in place of another as a legal and/or financial representative at the time of incapacity or death.
In a trust, the one in control of the inheritance until the beneficiary reaches the age set in the restrictions of the trust.
Private trust company
A trust established to protect the estate and property of the family as a while; otherwise known as a “family trust”.
The legal process of the court in reviewing an estate for distribution to named beneficiaries.
The tax passed on items that are inherited through the probate process; varies by state and value of the inheritance.
Any and all material that is owned.
Prudent man rule
The guiding rule that the trustee will manage the property of the trust with honesty and integrity, as outlined in the “Prudent Investors Act”.
Prudent Investors Act
A law that guides how a trustee or executor must use a trust, estate, or asset within holding.
Qualified domestic trust (QDOT)
A marital trust created for the benefit of non-citizens and surviving spousal support by marital exclusion from estate tax.
Qualified personal residence trust (QPRT)
An irrevocable trust that grants the holder access to the property for a documented amount of time, after which the ownership of the property will be passed on to the children or beneficiaries of the trust.
Qualified terminable interest property (QTIP)
Allows property to be passed on directly to the surviving spouse (as the sole beneficiary) without application of estate taxes, regardless of the value of the estate, due to the IRA application of an “unlimited” marital deduction.
Property acquired before marriage in a community property state.
Can be left to beneficiaries to cover any immediate costs that may arise while the estate is in probate.
The estate property that is left over from the previous estate; it does not redistribute to beneficiaries once the estate trust is terminated (i.e. a life trust for an estate, wherein the term of years has been reached and the property remains unmanaged by a trustee or beneficiary).
The remainder of property after settling an estate’s liabilities and beneficiary inheritance (“residuary estate”).
A specific set of guidelines that indicate what can and cannot be done, as well as when or if it can be done (i.e. the age requirements set on trusts or other monetary funds left to minor children).
A trust that is established during the lifetime of the holder that is subject to amendation, change, transfer, or cancellation by the trust holder.
The personal benefit resulting from a trust’s financial transaction.
One who settles the trust (“grantor” of the trust).
Special needs trust
A trust established for the life-long care of a family member with specific disabilities; establishes the financial and medical security of care for the beneficiary. This limits the use of property within the trust to the sole care of the beneficiary.
Established restriction within a trust that prevents intentional or unintentional spending of funds or access to property within a trust. This provision also acts to protect an estate’s assets from the claims of creditors.
State law exemptions
State-determined exemptions designed to keep smaller estates out of the costly hassle of prolonged probate.
Taking against the will
Taking a share in an amount that is permitted by law, or the minimum legal share. This comes out of what is left to the other beneficiaries.
Tangible personal property (TPP)
Physical property, including land and buildings owned by the trust.
Tenancy by the entirety
The right of survivorship between spouses (in writing) that ensures the deceased spouse’s share in joint tenancy will be inherited by the surviving spouse.
Tenancy in common
Co-ownership of property (typically in marriage) in which each owner holds an individual interest in the property, which can be gifted or transferred by the holder in life or at the time of death. In a marital tenancy in common, the property share is typically transferred to the surviving spouse.
Terms of a trust
A grantor’s expressed intent of trust management.
A trust that becomes active in death, following liability settlement and beneficiary property distribution.
Signing party of a will; for women, a “testatrix”.
Transfer on death designation
The designation of assets to pass free of probate immediately to an individual (otherwise, a “transfer on death” or “payable on death” designation).
The legal establishment of an entity to represent the estate and assets of the grantor in life and in death.
The document containing the designations of how a trust should be managed, distributed to beneficiaries, and maintained (a “trust agreement”).
The “executor” equivalent in charge of managing a trust following the death of the grantor.
The estate tax gift amount under $5 million annually; the exemption of an estate from gift or estate tax.
Uniform Custodial Trust Act
The legislation that established a simpler option to entrust minors inheriting an estate that exceeds the state’s threshold of minor property ownership.
Uniform Transfers to Minors Act
Legislation establishing the transfer of property to minors by designating a “custodian” to to manage the property on behalf of the minor (formerly, the “Uniform Gifts to Minors Act”).
Provision in a will, a trust, or in law to allow a beneficiary to make decisions on behalf of the beneficiary who is named to receive an estate following their initial inheritance.
A legal document that details an estate and the beneficiaries of that estate, as well as the desired estate distribution.