GLOSSARY OF TERMS
AB Trust – A trust designed to make sure the personal estate tax exemption of each spouse ($5 million inflation adjusted; currently $5.43 million) is used to the fullest extent possible, while allowing the surviving spouse to have use of the assets of the deceased spouse during the remainder of the surviving spouse’s lifetime. Because of changes in the estate tax laws, the AB Trust provisions are now no longer needed for the majority of people.
Administration – The process during which the trustee, executor or personal representative collects the decedent’s assets, pays all debts and claims and distributes the residue of the estate according to the trust, will or the state law intestacy rules (when there is no will).
Beneficiary – A person who will receive the benefit of property from an estate or trust.
Bypass trust – The “B Trust” in AB trust planning that is sheltered from the federal estate tax by the decedent’s estate tax exemption amount. Because this trust “bypasses” the estate tax in the decedent’s estate and at the surviving spouse’s death, this trust often is called a bypass trust. This type of trust will not be as important for tax planning in light of the concept of portability in the estate tax law, but such a trust still will be valuable for many non-tax planning considerations. If you reside in a state with a lower estate tax exemption than federal estate tax law provides, you may need to modify the terms of any bypass trust to address that lesser amount. See the comments above concerning AB trust planning.
Charitable remainder trust – A tax-exempt trust created during lifetime or at death that distributes an annuity or fixed percentage amount to one or more designated non-charitable beneficiaries for life or a term of years, with the remaining trust assets passing to charity upon termination of the trust. If appreciated assets are transferred to a charitable remainder trust and sold by the trust, the trust does not pay capital gains tax. Instead, the non-charitable beneficiaries are taxed on a portion of the capital gains as they receive their annual distributions and, in this manner, the capital gains tax is deferred.
Community property – A form of ownership in certain states, known as community property states, under which property acquired during a marriage is presumed to be owned jointly. Only a small number of states are community property states, and the rules can differ significantly in these states. California is a community property state.
Conservator – An individual or bank or trust company appointed by a court to act for an incapacitated adult. A conservator of the person is empowered to make personal decisions for the adult. A conservator of the property manages the property of the adult.
Conservatorship – A circumstance in which the court declares an individual (over the age of 18) unable to take care of legal matters and appoints another individual, known as a conservator, to do so.
Decedent – An individual who has died.
Descendants – An individual’s children, grandchildren, and more remote persons who are related by blood or because of legal adoption. An individual’s spouse, stepchildren, parents, grandparents, brothers, or sisters are not included. The term “descendants” and “issue” have the same meaning.
Durable power of attorney – A power of attorney that allows a trusted person (an “agent”) to take care of financial matters while the principal (the person signing the Power of Attorney) is alive. This may become effective immediately upon signing, or upon a physician’s statement. This document does not terminate upon the incapacity of the person making the power of attorney.
DNR (Do Not Resuscitate) – A document completed by a physician normally for persons who have a terminal illness, outlining their final medical wishes, while under care at the hospital.
Estate planning – A process by which an individual designs a strategy and executes a will, trust agreement, or other documents to provide for the administration of his or her assets upon his or her incapacity or death. Tax and liquidity planning are part of this process.
Executor – A person named in a will and appointed by the court to carry out the terms of the will and to administer the decedent’s estate. May also be called a personal representative. If a female may be referred to as the executrix.
Fiduciary – An individual or a bank or trust company designated to manage money or property for beneficiaries and required to exercise the standard of care set forth in the governing document under which the fiduciary acts and state law. Fiduciaries include executors and trustees.
Gift tax – The tax on completed lifetime transfers from one individual to or for the benefit of another (other than annual exclusion gifts and certain direct payments to providers of education and medical care) that exceed the gift tax exemption amount ($5 million inflation adjusted).
Grantor – A person who creates, or contributes property to, a trust. Also called a “trustor” or “settlor.”
Guardian – An individual or bank or trust company appointed by a court to act for a minor. A guardian of the person is empowered to make personal decisions for the minor. A guardian of the property manages the property of the minor.
Health care power of attorney – A document that appoints an individual (an “agent”) to make health care decisions when the grantor of the power is incapacitated.
Heir – An individual entitled to a distribution of an asset or property interest under applicable state law in the absence of a will. “Heir” and “beneficiary” are not synonymous, although they may refer to the same individual in a particular case.
HIPAA (Health Insurance Portability and Accountability Act) – This document allows names individuals access to medical records and to speak with your Physician.
Intestate – When one dies without a valid will, such that the decedent’s estate is distributed in accordance with a state’s intestacy law.
Irrevocable trust – A trust that cannot be terminated or revoked or otherwise modified or amended by the grantor.
Joint tenancy – An ownership arrangement in which two or more persons own property, usually with rights of survivorship.
Living trust – A trust created by an individual during his or her lifetime, typically as a revocable trust. Also referred to as an “inter vivos” trust, “revocable living trust” or “loving trust.”
Living will – A legal document that sets out the medical care an individual, or the principal, wants or does not want in the event that he or she becomes incapable of communicating his or her wishes. This document allows a trusted person to end life support if all possible measures have been exhausted.
POLST (Physician Orders for Life-Sustaining Treatment) – A bright-pink document signed by the patient and their physician, outlining their desire to prohibit first responders from providing life-saving, medical services at the patient’s residence. It shall be posted on the backside of the residence’s primary entrance, or the refrigerator.
Pour over will – A will used in conjunction with a revocable trust to “pour” property into the trust at death, if the asset is below $166,000 and titled individually.
Power of attorney – Authorization, by a written document, that one individual may act in another’s place as agent or attorney-in-fact with respect to some or all legal and financial matters.
Probate – The court-supervised process of proving the validity of a will and distributing property under the terms of the will or in accordance with a state’s intestacy law in the absence of a will.
Property – Anything that may be the subject of ownership, whether real or personal.
Revocable trust – A trust created during lifetime over which the grantor reserves the right to terminate, revoke, modify, or amend. This document sets out the desires of the Grantor as to who receives his or her property at death.
Settlor – A person who creates, or contributes property to, a trust. Also called a “trustor” or “grantor.”
Special needs trust – Trust established for the benefit of a disabled individual that is designed to allow him or her to be eligible for government financial aid by limiting the use of trust assets for purposes other than the beneficiary’s basic care.
Spendthrift provision – A trust provision restricting both voluntary and involuntary transfers of a beneficiary’s interest, frequently in order to protect assets from claims of the beneficiary’s creditors.
Tenancy in common – A co-ownership arrangement under which each owner possesses rights and ownership of an undivided interest in the property, which may be sold or transferred by gift during lifetime or at death.
Testamentary – Relating to a will or other document effective at death.
Transfer on death designation – A beneficiary designation for a financial account (and in some states, for real estate) that automatically passes title to the assets at death to a named individual or revocable trust without probate. Frequently referred to as a TOD (transfer on death) or POD (payable on death) designation.
Trust – An arrangement whereby property is legally owned and managed by an individual or corporate fiduciary as trustee for the benefit of another, called a beneficiary, who is the equitable owner of the property.
Trustee – The individual or bank or trust company designated to hold and administer trust property (also generally referred to as a “fiduciary”). The term usually includes original (initial), additional, and successor trustees. A trustee has the duty to act in the best interests of the trust and its beneficiaries and in accordance with the terms of the trust instrument. A trustee must act personally (unless delegation is expressly permitted in the trust instrument), with the exception of certain administrative functions.
Will – A writing specifying the beneficiaries who are to inherit the testator’s assets and naming a representative to administer the estate and be responsible for distributing the assets to the beneficiaries.