Estate Planning Definitions

Annual Gift Tax ExclusionTechnique to allow gifts without the imposition of estate or gift taxes and without using lifetime exclusion.

BeneficiaryIn a living trust, the person and/or organization who receive the trust assets (or benefit from the trust assets) after the death of the trust grantor.

Charitable Remainder Interest TrustA trust whereby donors transfer property to a charitable Trust and retain an income stream from the property transferred. The donor receives a charitable contribution income tax deduction, and avoids a capital gains tax on transferred property.

Children’s or Grandchildren’s Irrevocable Education TrustA Trust used by parents and grandparents for a child’s or grandchild’s education.

Contingent BeneficiaryA contingent beneficiary receives the proceeds of a beneficiary-named financial account if the primary beneficiary is not alive to accept the benefits of the account at the time they are paid.

Family Limited PartnershipAn entity used to:
1. Provide asset protection for partnership property from the creditors of a partner
2. Provide protection for limited partners from creditors
3. Enable gifts to children and parents maintaining management control
4. Reduce transfer tax value of property

Federal Estate TaxA tax levied by the federal government upon the estate of a deceased person. The federal government gives certain exclusions and deductions and then taxes everything above a set level.

Fractional Interest GiftAllows a donor to transfer partial interests in real property to donees and obtain fractional interest discounts for estate and gift tax purposes.

FundingIs the process that entails transferring assets you own as an individual into the name of your Trust.

Generation Skipping TaxThis is a tax levied on assets that are given to individuals who are more than one generation away from the donor. An example would be a grandparent giving an asset to a grandchild either during the grandparent’s life or at death. Effective use of generation-skipping exemption allows the assets to avoid estate tax inclusion in the child’s taxable estate.

Guardianship/ConservatorshipIs a court-supervised proceeding which names an individual or entity to manage the affairs of an incapacitated person. A guardianship may also include the duty to care for the incapacitated person.

Health Care AgentA health care agent is the person who is given 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.

Health Care Power of AttorneyInstrument used to allow a person you name to make health care decisions for you should you become incapacitated.

Irrevocable Life Insurance TrustA Trust used to prevent estate taxes on insurance proceeds received at the death of an insured.

Joint TenancyWhen property is held in joint tenancy with rights of survivorship by two or more people, upon the death of one of the owners, all of his or her interest in the property is transferred immediately to the surviving owners.

Living WillSometimes called a physician’s directive, is a document in which you give directions for life sustaining treatment should you become unable to communicate your wishes. Some states have combined this into the advanced health care directive.

Personal RepresentativeAnother name for an executor or administrator.

POA AgentA power of attorney agent is the person authorized to represent or act on another’s behalf in private affairs, business, or some other legal matter.

Pour Over WillIs used first to name a guardian for minor children. Second, it protects against intestacy in the event any assets have not been transferred into the Trust at the death of the Trustor/Owner. Its function is to “pour” any assets left out of the Trust into it so they are ultimately distributed according to the terms of the Trust.

Private FoundationAn entity used by higher-wealth families to receive charitable income, gift, or estate tax deduction while allowing the family to retain some control over the assets in the foundation.

ProbateThe legal process of validating a will, paying debts, and distributing assets after death.

Property Power of AttorneyInstrument used to allow an agent you name to manage your property.

Revocable Living TrustA device used to avoid probate and provide management of your property, both during life and after death.

State Estate or Inheritance TaxA state estate tax is a tax levied by a state government upon the estate of a deceased person. It is levied in much the same way as the federal estate tax. A state inheritance tax is a tax levied by a state government that varies depending upon the relationship of the inheritor to the deceased person. Nearly half the states have a separate state estate or inheritance tax which kicks in at a lower level than that of the federal government.

Step-up in BasisA step-up — or step-down — in basis is an adjustment for income tax purposes to an asset’s fair market value at the date of the death of the owner of the asset. For example, if you bought a share of stock for $100 that increased in value to $500 at the time of your death, your tax basis was $100 but increases to $500 at the time of death.

Successor TrusteePerson or institution named in the trust document who will take over should the first trustee die, resign, or otherwise become unable to act.

TrusteeThe person or entity in charge of the assets in a Trust. While you are alive, you may act as Trustee. For married couples, either one or both spouses may act as Trustee or co-Trustees. The successor Trustee is an individual or corporation fiduciary whom you designate to be in charge of your Trust in the event of disability or upon death.

TrustorThe person who sets up or creates the trust. The person whose trust it is. Also called creator, settlor, trustor, donor or trustmaker.

WillA legally enforceable declaration of how a person wishes his or her property to be distributed after death. In a Will, a person can also recommend a guardian for his or her children.