Glossary of Estate Planning Terms

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A statement in front of a person who is qualified to administer oaths (a Notary) that a document bearing the personís signature was actually signed by the person.

AB Trust:
A trust giving a surviving spouse (or mate) a life estate in property of a deceased spouse or mate. This type of trust is designed to save on eventual estate taxes by giving the surviving spouse (or member of an unmarried couple) the income from the property of the first spouse to die (not the property itself). It can also be called a marital life estate trust, spousal bypass trust, or an exemption trust.

Abstract of Trust:
A condensed version of a living trust which omits key parts such as what property is in the trust and who are the beneficiaries. An Abstract of Trust is used to establish that a valid living trust has been established without disclosing specifics the person who created the trust wants to keep confidential.

Accumulation Trust:
A trust where trust income is retained and not paid out to beneficiaries until certain conditions have been satisfied.

The failure of a specific gift of property to take effect because the property is no longer owned by the person at the time of his death.

Administration of an estate:
The court supervised distribution of the probate estate of a deceased person. The person who manages the distribution is called the executor if there is a will. If there is no will, this person is called the administrator.

Payment of a fixed sum of money to a specified person, by contract, at regular intervals (usually monthly).

This is a tax term relating to the valuation of property for determining profit or loss on sale. If you buy a property for $100,000, your tax basis is $100,000. If you later sell it for $250,000, your taxable profit is $150,000.

A person who is legally entitled to receive gifts made under a will or trust. Except when very small estates are involved, beneficiaries of wills only receive their benefits after the will is examined and approved by the probate court. Beneficiaries of living trusts receive their benefits outside of probate as provided in the document establishing the trust. A primary beneficiary is a person who will benefit from a will or trust if living at the descendentís death. A contingent beneficiary is a person who may or may not inherit property, depending on the terms of the will or trust and what happens to the primary beneficiaries. For example, a contingent beneficiary may receive nothing unless and until the primary beneficiary dies.

A legal term for a will provision leaving personal property to a specified person. Another word for "gift".

A document guaranteeing that a certain amount of money will be paid to those injured if a person occupying a position of trust does not carry out his or her legal and ethical responsibilities. Thus, if an executor, trustee or guardian, who is bonded, wrongfully deprives a beneficiary of his or her property, the bonding company will replace it, up to the limits of the bond. Bonding companies issue bonds in exchange for premiums averaging 10% of the face amount of the bond. The requirment for a bond is often waived by the maker of a will or grantor of a living trust because of the high cost and usually low risk.

Bypass Trust:
Any trust that created a life estate for a life beneficiary, with the trust principal going to the final beneficiary when the life beneficiary dies. See AB Trust.

Charitable Trust:
Any trust designed to make a substantial gift to a charity while achieving income and estate tax savings for the grantor.

By law, oneís children are: (1) biological offspring, (2) children who were legally adopted, (3) children born out of wedlock and (4) children born to the maker of a will after the will is made, but before his or her death.

A separate legal document which, after it has been signed and properly witnessed, changes an existing will. An amendment to a will.

Common Law Marriage:
In a minority of states, couples may be considered married if they live together for a certain period of time and intend to be husband and wife. It is not recognized in California.

Community Property:
California follows a system of marital property ownership called "community property". All property acquired after marriage and before permanent separation is considered to belong to both spouses equally, except for gifts to and inheritances by a spouse. Also, income from community property is community property income.

Someone appointed by a court to manage the affairs of a mentally incompetent person.

Death Taxes:
Taxes levied on the property of a person who died. Federal death taxes are called "Estate Taxes". State death taxes (if any) go by various names, including "inheritance tax". California has no inheritance tax.

A person who has died.

A person who is an offspring, however remote.

The right to refuse to accept property left to you by trust or will. Sometimes there is a tax advantage when a gift is disclaimed.

Someone who receives a gift.

Someone who gives a gift.

Durable Power of Attorney:
A power of attorney that remains effective even if the person who created it (called the "principal") becomes incapacitated. The person authorized to act (called the "attorney-in-fact") can make decisions for the principal as defined in the document.

Generally, all the property you own when you die. There are different ways to measure estates: the taxable estate (property subject to estate taxation), the probate estate (property that must go through probate), and the net estate (the net value of the property).

Estate Planning:
The art of reducing or minimizing estate taxes and property subject to probate while passing your property on to loved ones in a way that minimizes time, legal fees, aggravation and other costs.

Estate Taxes:
See Death Taxes.

The person named in your will to manage your estate, deal with the probate court, collect your assets and distribute them as you have specified. If you die without a will, the probate court will appoint such a person, who is called the administrator of the estate.

Final Beneficiaries:
People or institutions designated to receive life estate trust property outright upon the death of a life beneficiary.

Funding a Trust:
Transferring ownership of property to a trust in the name of the trustee.

Generation-Skipping Trust:
Tax-saving trust, where the principal is left in trust for oneís grandchildren, with oneís children receiving only the trust income.

Gift Tax:
Tax on gifts made during a personís lifetime. Many gifts are exempt from tax: gifts to tax-exempt charities or the giverís spouse (if the recipient spouse is a U.S. citizen), and gifts of $10,000 or less to a single recipient each calendar year.

The person or persons who create a trust. Also called the trustor, settlor or creator.

Guardian of the Estate:
An adult appointed by a court who assumes legal responsibility for a minor's property.

Guardian of the Person:
An adult appointed or selected to care for a minor child if no biological or adoptive parent (legal parent) of the child is able to do so. If one legal parent is alive when the other dies, the child will automatically go to that parent unless a court determines that the best interest of the child requires something different.

Persons who are entitled by law to inherit your estate if you donít leave a will or other device to pass property at your death.

Holographic Will:
A will that is completely handwritten by the person making it. While legal in California, it is never advised except as a last resort.

To receive property from one who dies either intestate or testate.

To die without a will or other valid estate transfer device.

Intestate Succession:
The method by which property is distributed when a person fails to distribute it in a living trust or will. In such cases, the law of each state provides that the property be distributed in certain shares to the closest surviving relatives. The intestate succession laws are also used if an heir is found to be pretermitted (not mentioned or otherwise provided for in a living trust or will).

Document; sometimes used to refer to the document that creates a living trust.

Inter Vivos Trust:
Latin for "between the living".

Oneís direct descendants such as children, grandchildren, etc.

Joint Tenancy:
A method of taking title to jointly owned real or personal property. When two or more people own property as joint tenants and one of the owners dies, the other owners automatically become owners of the deceased ownerís share.

Letters Testamentary:
The document issued by a probate court authorizing the executor to discharge his or her responsibilities.

Life Beneficiary:
A person who receives use of trust property and the benefit of trust income for his or her life, but who doesnít own the trust property itself (the principal). A life beneficiary has no power to dispose of the trust property upon his or her own death.

Life Estate:
The right to use trust property and receive income from it during oneís lifetime.

Life Insurance Trust:
An irrevocable trust designed to own life insurance and reduce the size of the original ownerís taxable estate.

Liquid Assets:
Cash or assets that can be readily turned into cash.

Living Trust:
A trust set up while a person is alive and which remains under the control of that person until death. Also referred to as an "inter vivos trust". Living trusts are an excellent way to eliminate or minimize the value of property passing through probate. This is because they enable the grantor to specify that money or other property will pass directly to the beneficiaries after their death, free of probate, and yet allow the grantor to continue to control the property during his or her lifetime and even end the trust or change the beneficiaries, if desired.

Living Trust with Marital Life Estate:
See AB Trust.

Living Will:
A document, directed to physicians, in which you state that you do not want to have your life artificially prolonged by technological means, but choose a natural death. By limiting treatment, a living will limits hospital bills which can drain or even eliminate your assets so that there is little remaining for your heirs.

Marital Deduction:
A deduction allowed by the federal estate tax law for all property passed to a surviving spouse who is a U.S. citizen. This deduction (which really acts like an exemption) allows anyone to pass his or her entire estate to a surviving spouse without any tax at all. This may be a good idea if the surviving spouse is relatively young and in good health.

If the surviving spouse is likely to die in the near future, however, tax problems can be made worse by relying on the marital exemption. This is because the second spouse to die will normally benefit from no marital deduction, which means the combined estate, less the standard estate tax exemption, will be taxed at a high rate. Well drafted estate planning documents can minimize the tax.

Persons under 18 years of age. A minor is not permitted to make certain types of decisions (for example, enter into most contracts). All minors are required to be under the care of a competent adult (parent or guardian) unless they qualify as emancipated minors (in the military, married or living independently with court permission). Property left to a minor must be handled by a guardian or trustee until the minor becomes an adult.

Next of Kin:
The closest living relation.

Personal Property:
All property other than land and buildings attached to land.

Pour-over Will:
A will that "pours over" property into a living trust at death. Property left through the will generally must go through probate before it goes into the trust.

Power of Appointment:
Having the legal authority to decide who shall receive someone elseís property. Usually property held in a trust.

Power of Attorney:
A legal document where you authorize someone else to act for you. See Durable Power of Attorney.

Pretermitted Heir:
A child (or the child of a deceased child) who is not named in a will or living trust. Most states presume that persons want their children to inherit. Consequently, children, or the children of a child who has died, who are not mentioned or provided for in a will or living trust (even $1) are entitled to a share of the estate.

Property owned by a trust, as distinguished from the income generated by that property.

A court proceeding in which: (1) the authenticity of your will (if any) is established, (2) your executor or administration is appointed, (3) your debts and taxes are paid, (4) your heirs are identified, and (5) the property in your probate estate is distributed according to your will (if there is a will). If there is no will (or living trust), the property will be distributed in accordance with the laws of intestate succession which you may not like.

Probate Estate:
All of your property that will pass through probate. Generally, this means all property owned by you at your death less any property that has been placed in joint tenancy, a living trust, a bank account trust, or in life insurance.

Probate Fees:
Fees paid from a decedentís estate to an attorney during probate. The fees average 5% of the decedentís gross estate. These fees can be eliminated with a living trust usually saving thousands of dollars.

Property Control Trust:
A trust that imposes limits or controls over the rights of beneficiaries for various reasons. These trusts include:

  • Spendthrift trusts designed to prevent a beneficiary from being able to waste trust principal.

  • Special needs trusts designed to assist disadvantaged persons with special physical or other needs.

  • Sprinkling trusts which authorize the trustee to decide how to distribute trust income or principal among different beneficiaries.

Proving a Will:
Getting a probate court to accept the fact, after your death, that your will really is your will.

QDOT Trust:
A trust used to postpone estate taxes when one spouse is a non-citizen of the U.S.

QTIP Trust:
A marital trust with property left for use of the surviving spouse as life beneficiary. No estate taxes are assessed on the trust property until the death of the life beneficiary spouse.

Quasi-Community Property:
A rule that applies to married couples who have moved to California. All property acquired by them during their marriage in other states is treated as community property at their death.

Real Property:
All land and items attached to the land, such as buildings, stationary mobile homes, fences and trees are real property or "real estate". All property which is not real property is personal property.

The process of filing a copy of a deed or other document with the county recorderís office. Recording creates a public record of all changes in ownership of property.

Separate Property:
All property which is not community property. See Community Property.

Stepped-Up Basis:
The tax basis of inherited property is "stepped up" to the market value of the property at the decedentís death. The result is substantial tax savings.

Successor Trustee:
The person (or institution) who takes over as trustee of a trust when the original trustee(s) have died or become incapacitated.

Surviving Spouseís Trust:
When a couple has created a living trust with marital life estate, the revocable living trust of the surviving spouse, after the other spouse has died.

Taxable Estate:
The portion of your estate that is subject to federal or state estate taxes.

Testamentary Trust:
A trust created by a will.

Someone who dies leaving a valid will, or other valid property transfer devices, dies "testate".

A document that proves ownership of property.

Totten Trust:
A simple savings bank trust, revocable at any time before the death of the depositor (also called "pay-on-death" account).

A legal arrangement under which one person or institution (called a trustee) controls property given by another person (called a grantor, settlor or trustor) for the benefit of a third person (called a beneficiary). The property itself is the principal of the trust. When forming a living trust, the trustee and grantor may be the same person.

The person or institution who manages trust property under the terms of the trust document. With a revocable living trust, the creators of the trust (grantors) are the original trustees.

Trust Corpus or Res:
Latin for the "property" transferred to a trust.

Trustee Powers:
The provisions in a trust document defining what the trustee may and may not do.

A legal document in which a person directs what is to be done with his or her property after death. It may also designate guardians for your children. With some exceptions, property passed by will must go through the probate process. See Probate.

This information is intended to provide general information only. If legal advice is required, the services of an attorney should be obtained. Not every situation is the same.

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