Glossary: Trusts + Estates
We are happy to provide this basic glossary of terms you’ll encounter when planning your Estates and Trusts. This is intended to provide general information only.
Click a term to show its defintion.
- A Trust
The surviving spouse’s portion of an A-B trust. Also called marital trust or survivor’s trust.
- A-B Trust
A trust that includes a tax-planning provision that lets you provide for your surviving spouse and keep control over who will receive your assets after your spouse dies. It also lets both spouses use their federal estate tax exemptions. This can save a substantial amount in estate taxes and leave more money for your beneficiaries.
These are two “sub-trusts” created when a person dies, one of which, the “A” Trust, will be maintained for the benefit of the surviving spouse, and the other of which, the “B” Trust, will contain assets of a value equal to the deceased spouse’s remaining estate tax exclusion amount. The B-Trust, sometimes referred to as the “By-Pass Trust” or the “Credit Shelter Trust”, will also be held for the benefit of the surviving spouse during his or her lifetime, but upon the death of the surviving spouse, will pass to the children (or other beneficiaries) without any additional estate tax, irrespective of the value of the B-Trust at that point.
For example, in 2020, when the federal estate tax exemption is $11.58 million, an A-B trust will let a married couple transfer up to $23.16 million to their beneficiaries estate tax- free. The current estate tax is in 2020 is 40% for anything over and above the exempt amount. *NOTE: the exempt amounts and percentages of taxes are subject to change and are a hot button political issue that will likely change in 2021 with a new administration—it is expected the exempt amounts will be substantially reduced, and the tax rate may be raised. Historically, it has been as high as 55%. This is for federal estate taxes. Each state has its own estate tax policies, with some states having no estate tax, and others taxing estates above a much lesser exempt amount than the federal exemption. In New York State, for example, the top estate tax rate is 16%, applicable to New York taxable estates over $10.1million. Dollars below that amount are subject to tax at graduated rates, starting at 3.06% for the first $500,000. It is no wonder why wealthy individuals and families look to relocate to “tax friendly” states, like Florida where there is no estate tax imposed by the state, in addition to no state income tax.
Court-supervised distribution of an estate during probate. Also used to describe the same process for a trust after the grantor dies.
Person named by the court to represent a probate estate when there is no will or the will did not name an executor, or the designated executor is unable or unwilling to serve. Female is administratrix. Also called personal representative in some states.
- Advance Medical Directive (also called a “Living Will”)
The legal instrument in which a person nominates another to make medical decisions when one is unable to do so, and also expresses the person’s wishes as to the extent of “extraordinary” medical care (such as resuscitation, use of a ventilator, oxygen, feeding tube, or other artificial means) desired in case of imminent death from an irreversible condition, or in the case of a persistent vegetative state. The Advance Medical Directive includes both a “living will” and a “durable power of attorney for health care decisions” or “Designation of Healthcare Proxy”.
- Alternate Beneficiary
Person or organization named to receive your assets if the primary beneficiary/beneficiaries named in your Trust die before you do.
- Ancillary Administration
An additional probate in another state. Typically required when you own real estate in another state that is not titled in the name of your trust.
- Annual Exclusion (from Gift Taxes)
Amount you can give someone each year without having to file a gift tax return or pay a gift tax. In 2020 and 2021, this amount is set at $15,000 per recipient ($30,000 if married). The amount of tax-free gifts is currently tied to inflation and may increase from time to time.
- Applicable Exclusion Amount
Amount exempted from federal (and applicable state) estate taxes. For example, in 2020, when the federal estate tax exemption is $11.58 million, an A-B trust will let a married couple transfer up to $23.16 million to their beneficiaries estate tax- free. The current estate tax is in 2020 is 40% for anything over and above the exempt amount.
Basically, anything you own, including your home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
A short document that transfers your interest in assets from your name to another. Often used when transferring assets to a trust.
- Attorney-In-Fact (or Agent)
The person appointed under a Power of Attorney to conduct the affairs and deal with the property of another. The attorney-in-fact need not be a lawyer. Any competent adult individual may serve. In many states, the term “Attorney-In-Fact” has been replaced by the term “Agent” under the Uniform Powers of Attorney Act.
- B Trust
The deceased spouse’s portion of an A-B trust. Also called credit shelter or bypass trust.
What you paid for an asset. The value that is used to determine gain or loss for income tax purposes.
The person named in a Will or Trust to receive property from the maker of the Will or Trust after the death of the decedent or trust grantor.
- By-Pass Trust
Another name for the “B” part of an A-B living trust because the assets in this trust bypass federal estate taxes. The Trust created to hold assets of a value equal to the decedent’s estate tax exclusion amount on such terms that those assets will “by-pass” further estate taxes when the initial beneficiary of the Trust dies. (Same as “Credit Shelter Trust” and “B-Trust”).
- C Trust
The legal competence to effectively perform a given act (e.g. to write a Will or Trust, to enter into a legally binding contract). Eg: “An adult of sound mind…” Such instruments need to be witnessed and notarized to attest to the capacity of the principal who is creating the document, whether he/she was of sound mind, and not subject to undue influence, fraud, etc.
- Capital Gain
The difference between what you receive for an asset when it is sold and what you paid for it. Used to determine the amount of capital gains tax due.
- Certificate of Trust
A shortened version of a trust that verifies the trust’s existence, explains the powers given to the trustee, and identifies the successor trustee(s). Does not reveal any information about the trust assets, beneficiaries, or their inheritances.
- Children’s Trust
A trust included in your living trust. If, when you die, a beneficiary is not of legal age, the child’s inheritance will go into this trust. The inheritance will be managed by a designated trustee you have named until the child reaches the age at which you want him/her to inherit.
A written change or amendment to a Will.
Two or more persons who establish one living trust together.
Two or more individuals who have been named to act together in managing a trust’s assets. A corporate trustee can also be a co-trustee.
- Common Trust
One living trust established by two or more individuals (usually a married couple).
- Community Property
Assets a husband and wife acquire by joint effort during marriage if they live in one of the eight community property states. (Wisconsin also has a similar law but does not use the term “community property.”) Each spouse owns half of the assets in the event of divorce or death.
One 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. May also be called a guardian. (Duties and titles can vary by state. For example, in Missouri, there is a guardian of the person and a conservator of the estate.)
A court-controlled or probate proceeding to supervise management of property of an incapacitated or incompetent person who is unable to manage his/her own affairs due to mental or physical incapacity. May also be called a guardianship.
To dispute or challenge the terms of a will or trust.
- Corporate Trustee
An institution, generally a bank or trust company, that specializes in managing trusts.
- Credit Shelter Trust
Another name for the B Trust in an A-B living trust or synonym of “Bypass Trust” because this trust “shelters” “bypasses” tax or preserves the federal estate tax “credit” of the deceased spouse.
Person or institution to whom money is owed.
- Crummey Trust
An irrevocable Trust established to qualify contributions for the annual federal gift tax exclusion (currently $15,000) for gifts of a present interest. Named because these Trusts contains “Crummey Powers”, enabling a beneficiary to withdraw assets contributed to the Trust for a limited period of time before they become subject to the other withdrawal provisions of the Trust (such as beneficiary doesn’t receive until they are 30, 35, or 40 years old, which are typically applied by parents to children). The Crummey provision allows the beneficiaries to withdraw the present amount exempt from gift taxes for a specified period of time before the assets become subject to the provisions of the trust.
Person named to manage assets left to a minor under the Uniform Transfer to Minors Act. In most states, the minor receives the assets at legal age.
Person who has died, legal term used in estate planning.
A document that lets you transfer title of your real estate to another person(s). Also see warranty deed and quitclaim deed. Proof of ownership of real property.
- Designated Beneficiary
An individual beneficiary of a retirement account (IRA, 401(k), 403(b), etc.) who qualifies as a person whose life expectancy may be used for determining required minimum annual distributions. The term “designated beneficiary” is a term of art under the I.R.S. regulations, one of which requires that to qualify as such the beneficiary must be an individual with an ascertainable life expectancy. Thus, for example, a charitable organization cannot qualify as a “designated beneficiary”. Designated beneficiaries can be named for instruments such as life insurance policies, bank accounts, retirement accounts, and pensions and are a popular way to avoid probate and provisions of a will.
To refuse to accept a gift or inheritance so it can go to the recipient who is next in line. A disclaimer is the election by a donee/recipient of a gift or beneficiary of bequest to decline acceptance. To be a “qualified disclaimer” for transfer tax purposes, a disclaimer must be exercised within nine months of death or gift, and must comply with other Internal Revenue Code requirements.
- Disclaimer Trust
A trust (set of instructions) established to receive, then manage and distribute, assets that would otherwise have been distributed to a prior beneficiary had that prior beneficiary not declined to accept (disclaimed) such assets.
The full or partial power to make a decision or judgment.
To prevent someone from inheriting from you.
Payment in cash or asset(s) to one who is entitled to receive it.
- Durable Power of Attorney for Asset Management
A legal document that gives another person full or limited legal authority to sign your name on your behalf in your absence. Valid through incapacity. Ends at death.
- Durable Power of Attorney for Health Care (or Health Care Surrogate or Health Care Proxy)
A legal document that lets you give someone else the authority to make health care decisions for you in the event you are unable to make them for yourself. Also called a health care proxy or medical power of attorney.
- Equitable Title
Beneficial ownership of an asset; the right to use, spend, consume and/or enjoy an asset or its income (such as the beneficiary of a trust).
The current market value of an asset less any loan or liability.
Assets and debts left by an individual at death.
- Estate Planning
The process of organizing and arranging one’s property and affairs so as to insure their current management and ultimate disposition in the most efficient, effective, economical, and private manner, taking into consideration the effect of state and federal tax and administrative laws and regulations.
- Estate Taxes
Federal or state taxes on the value of assets on the date of death. Also called inheritance taxes or death taxes. Taxes that are imposed by U.S. government and some states on the transfer of property from a decedent to his or her heirs or beneficiaries. The estate tax is levied on and measured by the size of the decedent’s estate, rather than on the amount received by any particular beneficiary.
- Exclusion Amount
The new term “applicable exclusion amount”- used by the Internal Revenue Code to identify the value of assets owned by a decedent effectively exempt from the federal estate tax. Amount exempted from federal (and applicable state) estate taxes. For example, in 2020, when the federal estate tax exemption is $11.58 million, an A-B trust will let a married couple transfer up to $23.16 million to their beneficiaries estate tax- free. The current estate tax is in 2020 is 40% for anything over and above the exempt amount.
- Executor (male)/Executrix (female)
Person or institution named in a will to carry out its instructions. Female is executrix. Also called a personal representative. The one nominated in a Will and thereafter appointed by the Probate Court to manage and distribute a decedent’s estate in accordance with the terms of the Will. May also be referred to as a Personal Representative.
- Family Trust
A Trust established to benefit one’s spouse, children and/or other family members. Often used in reference to the By-Pass Trust discussed above.
- Federal Estate Tax Exemption
Amount of an individual’s estate that is exempt from federal estate taxes. In 2012, the exemption is $5,120,000. If Congress does not act by the end of 2012, on January 1, 2013 the exemption will be $1 million.
Person having the legal duty to act primarily for another’s benefit. Implies great confidence and trust, and a high degree of good faith. Usually associated with a trustee. This person can be an attorney but doesn’t have to be, they should be experienced/well-versed in handling money or dealing with personal and financial affairs and their interests should not be in any way adverse to the beneficiaries (a friend who is struggling financially managing a million dollar trust for the benefit of your minor children isn’t a good idea).
- Fiduciary Responsibility
A serious responsibility of trust imposed upon one by the law, requiring the utmost degree of integrity and prudence in dealing with the property entrusted to the fiduciary (e.g. Trustee, Administrator, Executor, Guardian, Conservator, Agent).
- Fractional Interest
The less than 100% share of ownership held by a co-owner of an asset.
- Funding a Trust
The process of transferring assets to your living or other type of trust. This means re-registering legal title to one’s assets in the name of the Trustee of the Trust.
- Generation Skipping Transfer Tax (GSTT) Generation Skipping Transfer (GST) Tax
A federal tax imposed on certain transfers, either by gift or at death, between a donor/decedent and a person more than one generation removed (e.g., a grandchild or younger generation). In 2020, the U.S. generation-skipping transfer tax imposes a tax on outright gifts and transfers in trust to or for the benefit of unrelated persons who are more than 37.5 years younger than the donor or to related persons more than one generation younger than the donor, such as grandchildren. In 2020, the GSTT amount is 40% and has been since 2014. However, this amount has fluctuated from 35% to 55%.
A transfer from one individual to another, without compensation.
- Gift Tax
A federal tax on gifts made while you are living. Currently $15,000 per person per year is exempt from gift tax. Also called the “Annual Exclusion.” Note: The Estate and Gift Tax amounts are unified, and called the Unified Tax Credit or Unified Federal Gift and Estate Tax Exemption (currently $11.58 million in 2020), so amounts made to an individual in a given year that exceed the exempt amount ($15,000) can be applied towards one’s Unified Credit, reducing the amount available in the future for estate or other gift tax exemptions, yet is a popular vehicle to avoid taxes, since the current Unified Credit is at a historic high and is likely to be substantially lowered.
- Gift Trust
An Irrevocable Trust established to act as the repository of gifts to its beneficiaries, drafted such that the gifts to the Trust will be excluded from the donor’s taxable estate at death. (See “Crummey Trust”.)
The person who sets up or creates the trust. The person whose trust it is. Also called creator, settlor, trustor, donor or trustmaker.
- Gross Estate
The total value, for estate tax purposes, of everything in which one has an ownership interest at the time of death, before debts are paid.
Court proceeding initiated and designation of a Guardian (either appointed by the court, or pre-determined by appropriate Pre-Need documentation) to supervise management of the personal affairs (e.g. living accommodations, nursing home selection) of a minor or an incapacitated person. In some states the term “guardianship” also refers to the procedure used to manage property and legal affairs of such a person. (Referred to in some states as “Conservatorship.”)
- Health Care Proxy
See “Durable Power of Attorney for Health Care.”
One who is entitled by law to receive part of your estate/the person entitled to distribution of an asset or property interest under applicable state law, in the absence of a Will or Trust. (Note that “heir” and “beneficiary” are not synonymous, though they may refer to the same individual in a particular case.) Your heirs are the ones who will inherit your property if you die with no valid Will or Trust in effect. Beneficiaries are those you designate legally with a will, trust, or by naming a designated beneficiary.
- Holographic Will
A handwritten will.
- Homestead Exemption
Portion of your residence (dwelling and surrounding land) that cannot be sold to satisfy a creditor’s claim while you are living. Different states have different laws and provisions.
Unable to manage one’s own affairs, either temporarily or permanently. Lack of legal power. Typically needs to be deemed so by a court with testimony of more than one attending doctor familiar with the case.
- Independent Administration
A form of probate available in many states. Intended to simplify the probate process by requiring fewer court appearances and less court supervision.
The assets received from someone who has died.
- Inheritance Tax
Tax imposed by some states on the amount received by a particular heir or beneficiary. Some states, such as New York, Connecticut, Massachusetts, and Maryland have an inheritance tax. Florida does not.
- Insurance Trust
An irrevocable Trust established to own life insurance on a person, so designed as to exclude the proceeds of the policy, called “the death benefit” from the insured person’s taxable estate at death. Life insurance policies held by an Irrevocable Life Insurance Trust (ILIT) are a popular way to leave money to beneficiaries free from taxes.
- Inter vivos
Latin term that means “between the living.” An inter vivos trust is created while you are living instead of after you die. A revocable living trust is an inter vivos trust. A living trust can be changed.
- Irrevocable Trust
A trust that cannot be changed (revoked), modified, amended, or cancelled once it is set up (Except to a very limited extent). Opposite of revocable trust. Irrevocable Trusts are often used in tax planning to get property “out” of a person’s taxable estate so that it will not be subject to estate tax upon his or her death, and are typically set up for the benefit of family members the trustor is confident and comfortable in leaving substantial assets to without any likely regrets in the future, as these are typically not able to be changed.
Dying without leaving a valid Will or Trust in effect, so that the decedent’s estate is distributed in accordance with state law of intestacy (intestate succession). (See “Heir” above.)
- Individual Retirement Account (see “Retirement Accounts)
Clients are encouraged to meet and discuss with a financial advisor and CPA as well as an attorney how best to navigate the complex world of retirement accounts.
- Joint Ownership
A form of ownership in which two or more persons own the same asset together. Types of joint or shared ownership include joint tenants with right of survivorship, tenants in common, and tenants by the entirety, which is a legal form of ownership only available to married couples.
- Joint Tenants with Right of Survivorship
A form of joint ownership in which the deceased owner’s share automatically and immediately transfers to the surviving joint tenant(s). Also called Joint Tenancy, it is a form of joint ownership of property that carries an automatic right of survivorship, such that title to the interest of a deceased joint owner automatically vests in the surviving joint tenant(s) by operation of law upon the death of one joint tenant. (Contrast with “Tenants-in-Common”.)
- Land Trust
Often used for privacy. Title is transferred to a corporate trustee or corporation, but you keep control over how the property is managed. Because the title is in the name of the corporate trustee or corporation, no one knows the property belongs to you. In all financial transactions and dealings, your personal name never comes up. Also called a title holding trust.
- Legal Title
“Registered ownership” of an asset. Refers to the person(s) whose name is on the deed, signature card, or registration certificate, etc.
- Liquid Assets
Cash and other assets (like stocks) that can easily be converted into cash.
- Living Probate
The court-supervised process of managing the assets of one who is incapacitated.
- Living Trust
A written legal document that creates an entity to which you transfer ownership of your assets. Contains your instructions for managing your assets during your lifetime and for their distribution upon your incapacity or death. Avoids probate at death and court control of assets at incapacity. Also called a revocable inter vivos trust. A trust created during one’s lifetime.
- Living Will
A written document that states you do not wish to be kept alive by artificial means when the illness or injury is terminal, such as in an irreversible terminal condition or persistent vegetative state. Now often called an “Advance Medical Directive.”
- Marital Deduction
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 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 the time of the second spouse’s death. The deduction is against gross estate value accorded by the Internal Revenue Code for transfers by gift or upon death to one’s spouse. Under current law the marital deduction is unlimited, e.g. there is no estate or gift tax on qualifying transfers of any amount to a U.S. citizen spouse. (See QDOT below for non-U.S. citizen spouses
- Marital Trust
Trust established to hold the surviving spouse’s share of property upon the death of first spouse to die (see “A-B Trust” above). Distributions to this Trust by a deceased spouse qualify for the marital deduction. (See above.) In the A-B Trust scenario, the A Trust will be the Marital Trust. See “A Trust.”
A federally-funded health care program for the poor and minor children. There are stringent income and asset requirements for eligibility, including assets that are exempt for purposes of qualifying for Medicaid. An experienced estate or elder law attorney can help sort through this.
A federally-funded health care program, primarily for Americans over age 65 who are covered by Social Security or Railroad Retirement benefits.
One who is under the legal age for an adult, which varies by state (usually age 18 or 21).
- Net Estate
The value of an estate after all debts have been paid. (Federal estate taxes are based on the net value of an estate.)
- Net Value
The current market value of an asset less any loan or debt.
- Payable-on-Death Account (POD)
A bank account titled in the name of the original owner, but directing distribution to a named beneficiary upon the owner’s death. POD accounts avoid probate administration. See “Totten Trust.”
- Per Capita
A way of distributing your estate so that your surviving descendants will share equally, regardless of their generation.
- Per Stirpes
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. (The children of one of your deceased children would receive that person’s share).
- Personal Property
Movable property. Includes furniture, automobiles, boats, art, jewelry, collectibles, equipment, cash and stocks. Personal effects. Opposite of real property that is permanent (like land).
- Personal Representative
Another name for an executor or administrator, often referred to as “PR” for short.
- Pour Over Will
A short will often used with a Revocable Living 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. A pour-over is used to dispose of any property owned by the decedent at time of death, which was not transferred to the Trust during the Trustor’s lifetime. The Pour-Over Will also revokes all prior Wills, but unlike traditional Wills it does not contain detailed dispositive provisions; rather it directs distribution of all individually owned property of the Testator to the Trustee of his/her Trust. The Trust instrument contains detailed instructions relating to the distribution of the property. Like all Wills, a Pour-Over Will is subject to probate administration. This is essentially a “catchall” in the event anything is discovered that was inadvertently left out of the trust.
- Power of Attorney
A legal document giving someone legal authority to sign your name on your behalf in your absence. Ends at incapacity (unless it is a durable power of attorney) or death. One appoints and empowers another person as agent to deal with one’s property and affairs. (See Attorney-in-Fact above). A General Power of Attorney is one which gives the Attorney-in-Fact broad, plenary powers; a Special Power-of-Attorney limits the Attorney-in-Fact’s authority to a particular property or transaction. A Durable Power-of-Attorney is one, which remains effective even after the maker becomes incapacitated. Most comprehensive estate plans include a General Durable Power-of-Attorney.
- Present Interest
To be eligible for the annual $15,000 exclusion from the Federal Gift Tax, the gift must be of a “present interest”. In other words, the gift must belong to the donee with “no strings attached.” (However, see “Crummey Trust” above.)
The legal process of validating a will, paying debts, and distributing assets after death. The process, usually administered by a probate court or an official subject to the court’s authority, established in all fifty states to supervise the transfer of legal title to property from a decedent to his heirs or beneficiaries, or to supervise the management of the property and affairs of one incapable of handling his or her own affairs. Also anyone who dies intestate or without a valid will has their estate subject to probate, according to the state’s laws of intestate succession, leaving assets to heirs at law (as determined by state statute) as opposed to those a person might choose to leave assets to (beneficiaries under a will or trust).
- Probate Fees
Legal, executor, and appraisal fees and court costs when an estate goes through probate. Probate fees are paid from assets in the estate before the assets are fully distributed to the heirs.
- Qualified Domestic Trust (QDOT)
Allows a non-citizen spouse to qualify for the marital deduction. A marital Trust used for the benefit of a non-U.S. citizen spouse containing special provisions specified by the Internal Revenue Code such that transfers to the QDOT qualify for a limited estate tax marital deduction, until they are actually withdrawn from the Trust.
- Qualified Personal Residence Trust (QPRT)
An Irrevocable Trust established to hold title to residential property. The owner transfers ownership of the house to the Trust, retaining the right to reside in the home rent-free for a period of years. Used to reduce the transfer tax cost of leaving a residence to one’s beneficiaries that they don’t wish to own jointly with the beneficiary/beneficiaries while they are alive and reside in it.
- 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. You can also keep control over who will receive these assets after your spouse dies. A Trust established for the benefit of a surviving spouse, qualifying for the estate tax marital deduction, but distributing any remaining balance at the survivor’s death to beneficiaries chosen by the deceased spouse-Trustor. Often used in second marriage situations to assure benefits for children of prior marriages.
- Qualifying Subchapter S Trust (QSST)
Trust that meets certain IRS qualifications and is allowed to own Subchapter S stock.
- Quitclaim Deed
Document that allows you to transfer title to real estate. With a quitclaim deed, the person transferring the title makes no guarantees, but transfers all his/her interest in the property. Often used amongst family members, as it is an inexpensive and convenient means of transferring title to real property or adding someone to the title to avoid probate.
- Real Property
Land and property that is permanently attached to land (like a building or a house).
- Recorded Deed
A deed that has been filed with the county clerk’s office. This creates a public record of all changes in ownership of property in the state.
- Revocable Trust
A trust in which the person setting it up retains the power to change (revoke) or cancel the trust during his/her lifetime. Opposite of irrevocable trust. A Trust established by an individual, or a married couple, that becomes effective immediately upon establishment while the Trustor is still alive (thus “Living”), remains revocable and amendable during the lifetime of the Trustor (thus “Revocable”), and is used to (1) avoid probate; (2) facilitate tax planning; (3) provide for management during periods of incapacity without need for guardianship or conservatorship; (4) address family circumstances; and (5) provide for ultimate distribution of the estate. The Trust includes a comprehensive set of instructions for the management and ultimate distribution of the property, accounts and other assets you own that you transfer into the trust.
- Required Beginning Date (RBD)
The date you must begin taking required minimum distributions from your tax-deferred plans. Usually, it is April 1 of the calendar year following the calendar year in which you turn age 70 1/2. If your money is in a company-sponsored plan, you may be able to delay your RBD beyond this date if you continue working (providing you are not a 5% or greater owner of the company). Clients need to discuss with a financial planner and CPA as well as their estate attorney.
- Inherited IRA-Required Minimum Distribution (RMD)
The amount you are required to withdraw each year from your tax-deferred plan after you reach your Required Beginning Date. This amount is determined by dividing the year-end value of your tax-deferred account by a life expectancy divisor found on a chart provided by the IRS.
- Roth IRA
A special form of IRA for which the owner receives no income tax deduction for contributions, but the account accumulates tax-deferred. Most significantly, withdrawals from the Roth IRA are not subject to income taxation. The goal in setting up a Roth IRA is to benefit from anticipated appreciation.
- Separate Property
Generally, all assets you acquire prior to marriage and assets acquired by gift or inheritance during marriage that you don’t deposit into a joint account or use to purchase a jointly titled asset.
- Separate Trust
A trust established by one person. A married couple can have separate trusts if each spouse has his/her own trust with its own assets, like having their own individual accounts. In contrast, see “Common Trust.”
- Settle an Estate
The process of handling the final affairs (valuation of assets, payment of debts and taxes, and distribution of assets to beneficiaries) after someone dies.
See “Grantor” and “Trustor” one who establishes a Trust.
- Special Gifts
A separate listing of special assets that will go to specific individuals or organizations after your incapacity or death. Also called special bequests. Florida has a Separate Writing provision as part of a will, where one can specify items of personal property to leave to certain individuals, notwithstanding provisions in the will.
- Special Needs Trust
Allows you to provide for a disabled loved one to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs. Common for elderly or disabled relatives who in long-term care facilities and receiving government assistance.
- Spendthrift Clause
Protects assets in a trust from a beneficiary’s creditors, including protection from ex-spouses or adversaries from attaching a claim to that interest before the assets are distributed, also prevents a beneficiary from acquiring debt based on the future inheritance. This restricts a beneficiary’s transfer rights to future payments of income or assets under a trust to a third party, protecting the beneficiary. The beneficiary does not touch or have access to the trust principle, only distributions from the trustee named in the trust.
- Spousal Option Trust
A Disclaimer Trust established to receive assets distributable to a surviving spouse but disclaimed by such spouse. Often used in estate planning for married couple where need for “by-pass trust” distributions cannot be determined until the death of first spouse to die.
Husband or wife.
- Stepped-up Basis
Assets are given a new basis when transferred by inheritance (through a will or trust) and are re-valued as of the date of the owner’s death. If an asset has appreciated above its basis (what the owner paid for it), 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.
- Subchapter S Corporation Stock
Stock in a corporation which has chosen to be subject to the rules of subchapter S of the Internal Revenue Code.
- Successor Trustee
Person or institution named in the trust document who will take over should the first trustee die, resign, or otherwise become unable to act.
- Surviving Spouse
The spouse who is living after one spouse has died.
- Survivor’s Trust
See “A Trust.”
- Tangible Personal Property
Personal property which ordinarily has no registered ownership attached to it, e.g. furniture, clothing, jewelry, antiques, collections, etc., but not cash or other financial assets.
- Tax-Deferred Plan
A retirement savings plan (like an IRA, 401(k), pension, profit sharing, or Keogh) that qualifies for special income tax treatment. The contributions made to the plan and subsequent appreciation of the assets are not taxed until they are withdrawn at a later time — ideally, at retirement, when your income and tax rate are lower. Roth IRA is an exception (see above).
- Taxable Gift
Generally, a gift of more than $15,000 in one year to someone other than your spouse. The value of the taxable gift is applied to your federal gift tax exemption. After you have used up your exemption, additional gifts will be taxed, usually at the highest estate tax rate in effect or can be applied against your unified gift and estate tax exemption amount.
A form of joint ownership in which two or more persons own the same property. At the death of a tenant-in-common, his/her share transfers to his/her heirs as opposed to the others they share ownership with.
- Tenants-by-the Entirety
A form of joint ownership in some states between husband and wife. When one spouse dies, his/her share of the asset automatically transfers to the surviving spouse.
- Testamentary Trust
A trust in a will, it can only go into effect at death. Does not avoid probate. A Testamentary Trust only comes into operation after the Will has been probated and the assets have been distributed in accordance with the probate court order. In many states, Testamentary Trusts remain subject to the jurisdiction of the probate court.
- Testate vs. Intestate
One who dies with a valid will. The latter is one who does without a valid will.
- Testator (male)/Testatrix (female)
Person who makes a Will.
Document proving ownership of an asset.
- Transfer Tax
A tax levied when ownership of an asset is given, bequeathed or transferred to another. Includes the Estate Tax (federal and state), Inheritance Tax, Gift Tax and Generation Skipping Transfer Tax.
An entity that holds assets for the benefit of certain other persons or entities. A trust is a legal arrangement in which “legal title” (registered ownership) to assets is transferred to a “Trustee”, who thereafter has a fiduciary duty to manage and distribute the Trust assets for the benefit of the beneficiaries of the Trust, all in accordance with the instructions contained in the Trust document (“Declaration of Trust”). The beneficiaries hold “equitable title” (right to use and enjoy) to those assets. Trusts of various types are frequently used in estate planning to achieve tax, financial, and personal objectives. It is helpful to remember that a Trust is simply a set of instructions — written by you and legally validated – of your instructions upon your death.
- Trust Company
An institution that specializes in managing trusts. Also called a corporate trustee.
Person or institution who manages and distributes another’s assets according to the instructions in the trust document. One who holds legal title to Trust assets, managing and distributing those assets in accordance with the terms and conditions specified in the Declaration of Trust. A Trustee may be an individual or a bank or trust company licensed to serve as a Trustee. A Trust may have one or more Trustees (Co-Trustees) who act together.
See “Grantor” and “Settlor.”
- Trust Estate (Trust Property)
The assets transferred to the Trustee by re-registering their legal titles in the name of the Trustee. The Trust Estate can include real estate, bank accounts, stocks, bonds, brokerage accounts, partnership interests, tangible personal property, and many other types of financial and legal interests.
- Totten Trust
A “pay-on-death” account. A bank account that will transfer to the beneficiary who was named when the account was established. The terms “transfer on death” (“TOD”), “in trust for” (“ITF”), “as trustee for” (“ATF”), and “pay on death” (“POD”) often appear in the title.
- Unified Credit
The amount each person is allowed to deduct from federal estate taxes owed after death. Currently $11.58M in 2020.
- Uniform Transfer to Minors Act (UTMA)
Law enacted in many states that lets you leave assets to a minor by appointing a custodian. In most states, the minor receives the assets at legal age.
Your living trust is unfunded if you have not transferred assets into it.
- Warranty Deed
Document that allows you to transfer title to real estate. With a warranty deed, the person guarantees that the title being transferred is clear (free of any encumbrances). If the title is defective, the person making the transfer is liable. Compare to quitclaim deed.
A written legal document with instructions to direct disposition of assets after death. A will can only be enforced through the probate court.