Definitions of frequently used words and phrases that might be helpful.


-- A --

ACTUARIAL Statistical calculation especially of life expectancy.

ADJUSTED GROSS ESTATE Arrived at by deducting estate settlement costs from the gross estate, also known as the taxable estate.

ADMINISTRATION The management of a decedent's estate.

ADMINISTRATOR An individual appointed by a court to settle the financial and legal affairs of a person who dies without a will.

Ancillary One who is appointed to charge of that portion of an estate which exists in a state or country other than the deceased person's residence.

Temporary A person or agency appointed to initiate the management of an estate until a regular appointee is named.

Of Undistributed Assets (de bonis non) The person or agency named by the court to replace a Personal Representative or Administrator who has not completed the settlement of an estate due to incapacitation, death or removal by the court.

With the Will Annexed (cum testamento annexo) One who is appointed to settle an estate when the original Personal Representative failed to qualify, or if the court refused to approve the one nominated in the will.

ADMINISTRATRIX A female administrator.

AFFIDAVIT A statement in writing sworn or affirmed to before an official (usually a notary public) who has authority to administer an oath or affirmation.

AFTER-BORN CHILDREN Those who are born after a will has been executed.

AGENCY An account in which the title to the property constituting the agency does not pass to the trust institution but remains in the owner of the property, who is known as the principal, and in which the agent is charged with certain duties with respect to the property.

AGENT A person who acts for another person by the latter's authority. The distinguishing characteristics of an agent are: (1) that he acts on behalf and subject to the control of his principal; (2) that he does not have title to the property of his principal; and (3) that he owes the duty of obedience to his principal's orders.

ALTERNATE VALUATION DATE Six months after death; date may be used for determining value of estate assets.

ANCILLARY ADMINISTRATION Administration of a decedent's estate in a state where he had property other than the state he resided in at his death.

ANNUAL EXCLUSION The amount of property (as of 2009 its $13,000, or $26,000 for a married couple) that may annually be given to a donee, regardless of the donee's relationship to the donor, free of gift tax. Only gifts of present interests qualify for the annual exclusion. See GIFT TAX EXEMPTION

ANNUITY The right to receive a series of payments on a yearly basis or at other regular intervals for a certain or uncertain period.
OR A series of periodic payment that are usually made in equal amounts for a specified period of time. Interest payments on bonds are one example of an annuity.

ANNUITY TRUST Donor transfers cash or securities to a charitable remainder trust naming one or more charitable organizations as the eventual beneficiary. Is qualified for a charitable contribution deduction, and provides that income is a fixed percentage of the fair market value of the assets originally transferred (must be at least 5% of the original sum placed in trust).

ANTE-NUPTIAL AGREEMENT Contract or agreement between a man and a woman before marriage but in contemplation and generally in consideration of marriage, whereby the property rights and interests of either the prospective husband or wife, or both of them, are determined, or where property is secured to either or both of them, or to their children.

APPRECIATED PROPERTY Capital assets which are increased in value in the hands of the owner over the cost at which he procured them or their adjusted basis.

ARBITRATION The hearing and determining of a controversy by a person or persons mutually agreed upon by the parties or chosen by the court or by someone under statutory authority; to be distinguished from adjudication.

ASSESSED VALUATION The valuation placed upon land for purposes of taxation. This valuation does not necessarily correspond to the marked valuation.

ASSET ALLOCATION The valuation placed upon land for purposes of taxation. This valuation does not necessarily correspond to the market valuation.

ATTESTATION CLAUSE That clause in a will in which the witnesses certify that the will has been signed before them and describes how all parties signed the will.

-- B --

BAILMENT The delivery of personal property by one person to another for some specific purpose, such as for use, repairs, or safekeeping, but without passing title to the property. The person delivering the property is know as the bailor; the person receiving it, the bailee.

BENEFICIARY One named in a will to receive a devise or legacy or the use of estate assets.

BEQUEST A transfer of personal property by will. It's distinguished from a devise which is a transfer of real property by will.

-- C --

CAPITAL GAIN A gain from the sale of an investment. The increase in the value of property over original acquisition price plus improvements, etc., or minor depreciation.
OR Capital gains (losses) arise from the sale of certain assets that have a useful life of more than one year and that are not normally bought or sold in the ordinary course of business. The sale of such assets is classified as short-term if they are held for less than one year and long-term if held for more than one year.

CHARITABLE ANNUITY A transfer of property to a charitable institution, part of which is payment for an annuity and the balance of which is a charitable gift, also known as a gift annuity.

CHARITABLE DEDUCTION Deduction allowed for gift to charitable institution.

CHARITABLE LEAD (OR UP-FRONT) TRUST A trust for a fixed term of years wherein a charity is the income beneficiary and the remainder goes to a noncharitable beneficiary.

CHARITABLE REMAINDER The trust property given to a charity upon the termination of the trust.

CHARITABLE REMAINDER TRUST An arrangement wherein the remainder interest goes to a legal charity upon the termination or failure of a prior interest.

CO-ADMINISTRATORS Two or more persons, names in a will, to settle an estate. A frequent arrangement is to name a bank or trust company, with an individual, such as a spouse, lawyer or friend.

CODICIL The only legal document which can change a will. It is a supplement to a will, adding to, taking from, or altering the will's provisions. It must be executed with the same formalities as a will.

COMMON DISASTER When two or more persons (usually husband and wife) die as a result of the same accident, when the death of each follows in a relatively short period of time.

COMMON DISASTER CLAUSE A clause under the will which prescribes the order of death as between two or more people who die at the same time.

COMMON LAW The legal system prevailing in the English-speaking countries-that is, the United States of America and the British Commonwealth of Nations. It originated in England and its form of development was different from that of Roman (civil) law.

COMMON TRUST FUND A group of securities managed by the same trustee on behalf of a number of trusts, usually for the purpose of diversifying the investments of the trusts.

COMMUNITY PROPERTY In some states property which is acquired by the efforts of either husband or wife constitutes a common fund in which each has an equal interest.

COMPETENCY Legally qualified, mentally and physically, to execute a document, such as a will.

COMPOUND INTEREST Interest computed on the accumulated interest as well as the original principal amount.

CONSERVATOR One who is appointed by the court to protect the interests of an incompetent, such as a minor, an insane person, a convict, etc.

CONTINGENT BENEFICIARY The beneficiary whose interest is conditioned upon a future occurrence which may or may not take place. Unless or until the condition takes place the interest is only contingent.

CORPORATE FIDUCIARY A bank or trust company exercising fiduciary powers under statutory authorization.

CORPUS (PRINCIPAL) A capital fund from which income is derived.

CORPUS OF THE TRUST Property held by the trustees of a trust upon which the trust instrument places income and ultimate ownership rights.

CO-TRUSTEE A joint trustee to whom specific duties are assigned. He is not to delegate such duties to another person.

CREDIT ESTATE TAX State death tax added to basic levies to bring states’ taxes up to the total maximum credit available under federal tax law.

CRUMMEY POWER A limited, usually noncumulative power of withdrawal over trust property that ordinarily lapses within a specified period of time. This power gives a trust beneficiary a present interest over property transferred to a trust. Since property transferred to a trust may not otherwise create a present interest in a beneficiary, a Crummey power is used to secure an annual exclusion for the donor of the property, permitting trust management of the property for the benefit of the beneficiary as contrasted with an outright gift.

CURTESY A husband’s life estate in the property of his deceased wife. By statue in most states, it is a life estate in one-third of the land she owned during their marriage. Curtesy has been abolished by statute in some states.

CUSTODIAN Donor transfers the minor’s gift to a custodian who manages, invests and re-invests the gift property without court approval. Custodian is empowered to pay or apply income and principal for the support, benefit, maintenance and education of the minor. Unpaid and unapplied income is accumulated.

-- D --

DEATH TAX Tax arising on the transmission of property after the owner’s death. Levied by individual states.

DECEDENT A person who has died.

DEDUCTION A legislatively granted privilege to subtract so much from a taxpayer’s income as equals the value of the gift, the loss, expense incurred, etc., of certain events or transactions.

DEED OF TRUST A sealed instrument in writing duly executed and delivered, conveying or transferring property to a trustee, usually but not necessarily covering real property.

DEVISE A testamentary disposition of real property.

DISABILITY INSURANCE Insurance to replace income lost when someone loses the ability (generally physical ability, but not always) to earn income.
Many different versions, with differing qualifications for disability, waiver periods, deductibles, lifetime caps, and terms for payout. These are rarely owned by Irrevocable Trusts, but when a trustee is taking responsibility for overseeing a portfolio of insurance premiums, sometimes disability policies will be in the mix.

DISPOSITIVE PROVISIONS The provisions of a will or trust agreement relating to the disposition and distribution of the property in the estate or trust; to be distinguished from administrative provisions which relate to the handling of the property while it is in the hands of the executor or trustee.

DISTRIBUTEE Any person entitled to take or share in whole, or in part, any property of someone who dies without a will. At common law, distributee applied to one who inherited personal property. Distributees should be distinguished from heirs which at common law technically denoted those who would inherit real estate when someone died without a will.

DIVERSIFICATION Diversification refers to a combination of assets in a portfolio that have returns that are not perfectly correlated. That is, the returns do not increase or decrease in exactly the same fashion.

DIVIDEND Dividends may be in the form of cash, stock, or tangible property. Cash dividends are declared by the directors of a corporation and are usually paid from corporate earnings. Cash dividends are the only return that most investors receive until they sell their stock.

DOMICILE The location of a person’s home or principal residence, although he may also have living quarters in another location.

DONOR (SETTLOR, CREATOR, TRUSTOR) In estates or trust, the person who creates, grants or donates the trust.

DOUBLE EXEMPTION A term applied to municipal bonds which are exempt from both state and federal income taxes.

DOWER An estate for life to which a married woman by statute is entitled on the death of her husband. In most states, it is a life estate of one-third of the value of all land which the husband owned during their marriage. Dower has been abolished by statue in some states. The reason for requiring a wife’s joining in the deed of any land by her husband is the release of her dower right.

DURABLE POWER OF ATTORNEY An instrument in writing by which one person authorizes another to act for him in specific actions described in the instrument, with authority extended to periods of disability, and incompetency.

-- E --

ESTATE The property of an individual, both real and personal, in the process of administration.

ESTATE ADMINISTRATION Includes paying all debts and claims, satisfaction of specific legacies, ascertainment of individual shares in residuary estate and distribution of those shares.

ESTATE PLAN An arrangement for the management and disposition of a person’s property during his lifetime and at his death. This can be accomplished by a will, one or more trusts, gifts made during life, or a combination of these.

ESTATE TAX Tax on the property and interests in property left by a decedent or on the transfer of such property as a result of death.

ESTATE TAX EXEMPTION EQUIVALENT A technical way of defining the dollar value of an estate that does not owe any estate tax. In 2009, that amount is $3.5 million. Under the IRC before recent updates, this was commonly referred to as the Unified Credit amount.

EXCLUSION, ANNUAL The continuing right of a donor to make a tax-free gift of up to an amount specified by the IRS ($12,000 in 2008) to any number of donees in any year; applies only to gifts of present interest.

EXCULPATORY PROVISION A provision in a will or trust instrument relieving or attempting to relive an executor or trustee from liability for breech of trust; sometimes called an immunity provision.

EXECUTOR A person or agency named in a will to administer the estate of a deceased person. (Synonymous with personal representative.)

EXECUTRIX A female executor.

EXEMPTION, LIFETIME The amount allowed to be given tax-free to a person or persons, once during their lifetime.


-- F --

FIDUCIARY A person charged with taking certain actions on behalf of another person (a beneficiary). In a trust case, the fiduciary is the trustee who manages the trust property, distributes income and makes final disposition of the trust property.

FIVE BY FIVE (5*5) - IRS code 2514(e): Most provision of the IRC that
ILIT's work to minimize or avoid are taxes levied on the grantors. The 5*5
provisions apply to the beneficiaries of an ILIT, and have to do with a gift
made to trust that a beneficiary chooses not to withdraw. There are many
different variants to 5*5 drafting and administration. These provisions
have the greatest impact when a benficiary dies before the grantor(s).

-- G --

GENERAL POWER OF APPOINTMENT A power given to a person to dispose of property he doesn’t own to anyone, including himself, his estate, his creditors, or the creditors of his estate.

GENERATION-SKIPPING TAX A tax imposed on any generation-skipping transfer, with the intention that this tax be substantially equal to the transfer tax which would have been payable if the property had actually been transferred outright to each generation.

GENERATION-SKIPPING TRANSFER Any taxable distribution or taxable termination with respect to a generation-skipping trust.

GIFT A voluntary transfer of property from one person to another without money or other consideration. There are four essential elements to a gift: (1) the intention to give; (2) renunciation of the right of ownership by the donor, without the power to revoke it; (3) delivery of possession by the donor to the donee; and (4) the donor must have mental capacity at the time he makes the gift.

GIFT ANNUITY A transfer of property to a charitable institution, part of which is payment for an annuity and the balance of which is a charitable gift.

GIFT SPLITTING permits all gifts to the trust to continue to come from a trustor's sole and separate property, but allows a trustor to "borrow" a spouse's right to gift up the ANNUAL EXCLUSION limit into the trust. By using gift splitting a trustor can maximize the amout of Gift Tax ANNUAL EXCLUSION the trust may use and minimize the amount of Estate Tax Exemption Equivalents that must be claimed now. Requires an annually filed gift tax return and confirmation that the trust allows gift splitting.

GIFT TAX (FEDERAL) Tax on the gift of property, securities, cash or other value by the donor to the donee. Paid by the donor.

GIFT TAX EXEMPTION This is the annual amount that can be gifted by anyone, to anyone, without requiring the person making the gift to pay a tax. In 2009, the annual gift tax exemption amount is $13,000.

GRANTOR TRUST Because an irrevocable trust has its own tax identity and
assets, separate from the grantors, it would normally bear the income tax consequences of earnings, sales of assets, etc, from its own assets and on its own income tax return. Certain rights given to a trustee, or certain administrative provisions, can throw the income tax consequences of trust earnings back into the grantor's income tax return, without running afoul of Estate or Gift tax benefits. These trusts - where the income tax consequences accrue to the grantor - are known as Grantor Trusts.

GROSS ESTATE All assets which a decedent owned at his death or made a transfer of before death which the estate tax laws require to be included in the donor’s taxable estate prior to deductions and exemptions.

GUARDIAN A person who has the legal duty and power to take care of the person who because of some disability, usually age or incompetence, is considered incapable of administering his or her own affairs.

-- H --

HEIRS AND NEXT OF KIN Individuals entitled to the estate of a person dying intestate under the laws of descent and distribution.

HOLOGRAPHIC WILL One which is written entirely in the maker’s own handwriting, not attested by subscribing witnesses.

-- I --

ILIT Stands for Irrevocable Life Insurance Trust. The trust is created to hold ownership of an insurance policy or policies and receive the proceeds for the benefit of surviving family members.

IN TERROREM CLAUSE A provision incorporated in some wills whereby a person who contests the will shall forfeit his legacy.

INCIDENT OF OWNERSHIP Pertaining to ownership of insurance; the retention of an interest by the decedent of more than 5% of the policy.

INCOME BENEFICIARY A beneficiary whose interest is limited to income earned.

INCOME IN RESPECT OF A DECEDENT (IRD) Income items and deductible obligations that would have been receivable or payable by the decedent had he lived and that are received or paid by his estate or successors to the property have the same tax consequences to the estate or successors when received or paid and retain the same character they would have had in the hands of the decedent.

INCOMPETENT A person judicially declared to be incapable of managing his affairs. May include a person, who by reason of old age, disease, weakness of mind or other cause, is unable, unassisted, to properly manage his property.

INHERITANCE The receiving of property from a deceased person’s estate, by right of succession rather than by devise.

INHERITANCE TAX A tax levied on the right to receive property from a deceased person. This tax should be distinguished from the estate tax which is a tax levied on the right to transmit property, not on the right to receive it.

INSURANCE TRUST A living trust of which the property is entirely or partially life insurance contracts or proceeds.

INTANGIBLE PROPERTY That which does not have physical substance.

INTER VIVOS Term used in law to describe agreements made while living. An inter vivos trust indicates a transaction made by a living person.

INTERNAL REVENUE CODE (IRC) The main body of information setting the rules for IRS agents for income, gift, and estate taxation.

INTESTATE Death without leaving a valid will.

INVASION OF TRUST A provision which permits a beneficiary to withdraw a portion of the corpus (principal) of a trust for the support and maintenance of the beneficiary.

IRREVOCABLE GIFT A transfer of property without consideration that cannot be changed.

IRREVOCABLE TRUST One that is not subject to amendment, change, modification or revocation.

ISSUE All persons who have descended from a common ancestor. May include adopted children, according to intention.

-- J --

JOINT AND SURVIVOR In life income gifts, the ownership of income rights by two (or more) people together for the period of their joint lives and then the income owned by the survivor during his life.

JOINT TENANCY Where two or more persons own property, either real or personal, according to a separate agreement entered into between or among the parties, whereby the property does not pass to heirs, cannot be disposed of by will, but can go only to a survivor (or survivors) of the tenancy.

JOINT WILL A single document which is executed by husband and wife making it the will of both. It is probated after the death of each of them.
LAPSE The falling of a gift into the residuary estate by reason of the death of the donee during the testator’s lifetime. Such a gift is known as a lapsed legacy or lapsed devise.

-- K --

-- L --

LEGACY (BEQUEST) A gift of personal property by will.

Demonstrative A gift of a definite amount to be paid from a specific fund or source.

General Not a particular kind, but definite amount.

Pecuniary A gift of money.

Specific A particular item.

LETTER OF ADMINISTRATION A certificate of authority granted by a court having probate jurisdiction to show that the authority of the office or duty of an administrator has been given to the person named in the letter.

LIFE ESTATE An estate or interest that someone has in property which lasts only during his lifetime, or the lifetime of some other person or persons. The life tenant has no ownership rights to transfer the interests after the life estate runs out.

LIVING TRUST A trust created and in effect during the lifetime of the maker.

LONG TERM CARE INSURANCE A special form of insurance, these policies
subsidize the medical and lodging costs that may be necessary under certain medical conditions.

LUMP SUM DISTRIBUTION With respect to pension plans, the distribution of an individual’s benefits in the form of one payment rather than in equal installments over a specified period of time or the individual’s lifetime. The Internal Revenue Code imposes certain requirements in order for the distribution to qualify for special tax treatment.

-- M --

MARITAL DEDUCTION The portion of a decedent's estate that may be given to the surviving wife or husband without its becoming subject to the Federal estate tax levied against the decedent's estate; a term that came into general use under the Internal Revenue Act of 1954.

MINOR An infant or person who is under that age which is accorded full legal rights. The age of majority varies from 18 o 21, and may vary within a state, depending on the purpose.

MUTUAL WILLS (RECIPROCAL) Two documents which have exactly the same provisions but executed separately by husband and wife.

-- N --

NONCUPATIVE WILL One that is given orally, in the presence of witnesses, usually during one's last illness under circumstances which make it impossible to prepare a written will.

-- O --

-- P --

PENSION TRUST A trust established by an employer (commonly a corporation) to provide benefits for incapacitated, retired, or superannuated employees, with or without contributions by the employees.

PER STIRPES DISTRIBUTION Where the children of a decedent receive only that share of property which the parent would have received if living.

PERSONAL PROPERTY All moveable property not fixed to land. Includes money, stocks and bonds, and other types of tangible assets of value.

PERSONAL REPRESENTATIVE A person or agency named in a will to administer the estate of a deceased person. (Synonymous with executor.)

POOLED INCOME FUND A transfer of property to charitable institution in exchange for a contract stipulating that the donor will receive the average earnings of the institution's investment fund as applied to the amount of his gift each year for the rest of his life and that the institution will be the owner of the property with no obligations after the donor's death.

POUR-OVER TRUST One which exists separately and independently of the will and is designated to serve as a custodian of property which it receives from the will.

POWER OF APPOINTMENT The right to designate either by will or by deed, the persons who are to receive certain property which came from the estate of a prior decedent. Usually, this power is vested in a person who receives the income from the property for his or her lifetime.

PRECATORY WORDS Expressions in a will praying or requesting (but not directing) that a thing be done or not done.

PREEMPTIVE RIGHTS A prior right or privilege, such as the right of a stockholder to be offered the privilege of buying additional shares before the stock is offered to others.

PRENUPTIAL AGREEMENT See ante-nuptial agreement.

PROBATE The action of proving before a competent judicial authority that a document offered for official recognition and registration as the last will and testament of a deceased person is genuine.

PROPERTY Anything which may be the subject of ownership, real and personal, tangible and intangible. It is that which belongs exclusively to a person, with full rights to enjoy and dispose of it. Real property is any land, or any estate in land. It is generally construed to include whatever is erected or growing upon the land. It may be defined to include anything which is immovable. Personal property is all property other than real property. It generally refers to property which is movable or personal.

-- Q --
-- R --

-- S --

SOLE AND SEPARATE PROPERTY An un-married person who owns property owns it " sole and separate"..unless something specific is done to change the character of the ownership (ie: transferring sole and separate property into a joint account). Married persons who wish to maintain the sole and separate character of such property after nuptials may do so, with attention to detail and documentation of income sources, etc.

-- T --

TERM LIFE INSURANCE This is not "permanent insurance", if premiums are not paid, it lapses immediately. Term is usually the cheaptest form of insurance coverage for very defined and fixed term periods of time (until the mortgage is paid off, until the kids are through college). The formulas for determing how much premium is required can vary some, to allow for a set premium amount over a set term of years. Some versions include graded Premium, level Premium, and annually adjustable.

-- U --


UNIVERSAL LIFE INSURANCE A form of Permanent insurance. Early premium payments are greater than the amount required to satisfy the mortality costs of the term benefit, and the excess premium is set aside in a savings account to pay down higher term rates that will be needed in the future. It pays a rate of interest on the amount of the savings account. Some
universal contracts may have death benefit guarantee that require the premium payment to be made according to schedule, even though the policy may not lapse if a premium payment is missed.

-- V --

VARIABLE LIFE INSURANCE A form of Permanent insurance where the insured bears the risk and the reward of the policy earnings. Variable life policies frequently make available investment options including equity, fixed income, and money market mutual funds.

-- W --

WHOLE LIFE INSURANCE A form of Permanent insurance. The insurance company bears all earnings and mortality risks, and pays a dividend of their choosing annually to amounts in the savings side of the policy ledger.

-- X --
-- Y --
-- Z --


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Copyright 2008