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Glossary
Definitions of frequently used words and phrases
that might be helpful.
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-- 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.
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-- 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.
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-- 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.
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-- 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.
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-- 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.
EXEMPTION EQUIVALENT see ESTATE
TAX EXEMPTION EQUIVALENT
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-- 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.
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-- 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.
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-- 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.
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-- 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.
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-- 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.
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-- 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.
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-- 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.
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| -- 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.
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-- U --
UNIFIED CREDIT See ESTATE
TAX EXEMPTION EQUIVALENT
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.
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| Trust Administration Since 1999 |
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