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Dictionary of Basic Estate Planning Terms
OF
BASIC
ESTATE
PLANNING
TERMS
Explanatory Note
The Dictionary of Basic Estate Planning Terms is intended to make words used in
wills, trusts, probate and estate tax proceedings as understandable as possible
by straightforward, “plain English” definitions. Florida readers are primarily
contemplated.
In
many instances, it is necessary to learn two or more terms in order to
understand a first term. Therefore, all of the words used in definitions that
are elsewhere defined are initial-capitalized.
In
rare situations where the form of speech for a word may be unclear, the form is
given in italics. For certain words with pronunciations that are not obvious, a
phonetic spelling is given in parentheses.
“I.R.S.”
means Internal Revenue Service.
“I.R.C.”
means the Internal Revenue Code.
“Treas. Regs.” means Treasury Regulations promulgated by the
Internal Revenue Service.
“U.S.C.” means the United States Code.
Clearly this dictionary cannot replace sound advice that you should obtain from
an attorney, accountant, banker or insurance agent in making your own estate
plan.
A
ABATEMENT
The reduction or
elimination of an Inheritance from an Estate due to the necessity that the
Estate first pay taxes, debts, expenses or other Inheritances of priority.
ACCESSION
Increase or
augmentation of a Specific Bequest.
ACCOUNTING
A report by a
Personal Representative, Trustee or Guardian summarizing assets, receipts and
distributions and other financial activities; usually this report must be given
to any Interested Party.
ACCUMULATION
TRUST
A Trust that
provides that its Trustee may, instead of distributing income to a Beneficiary,
withhold it and add it to the Principal of the Trust.
ADEMPTION (uh
DEM shun)
The failure of a Specific Bequest because of the absence of the
object of the testamentary gift or the impossibility of giving it. For example,
if Uncle Bob gives in his Last Will And Testament his Winchester hunting rifle
to his nephew Alex, but the rifle blew up into smithereens when Bob shot at a
canary, the gift of the rifle cannot be made.
ADEMPTION BY SATISFACTION
The elimination
of a Specific Bequest in a Will when its object already has been given to its
intended Beneficiary by the Testator of the Will prior to his death.
ADMINISTRATION
The process of marshaling and managing assets subject to a Will
or Trust and carrying out the terms of such Will or Trust. See Probate.
ADMINISTRATOR
A person, bank
or trust company appointed by a court to manage the Estate of a person who dies
without a Will or fails to make an effective appointment of a Personal
Representative.
ADMINISTRATOR AD
LITEM (LIE tum)
An individual,
bank or trust company appointed by a Probate court to manage certain assets or
litigate certain issues of an Estate because the Personal Representative has a
conflict of interest with respect to those assets or issues. The Latin “Ad
Litem” translates roughly to “for the suit” or “during the Litigation.”
ADMINISTRATOR
PENDENTE LITE (pen DEN tay LEE tay)
An individual, bank
or trust company expediently appointed by a Probate court to manage an Estate
on a temporary basis until a lawsuit can be resolved which impacts the
appointment and performance of a permanent Personal Representative. The Latin
“Pendente Lite” translates roughly to “pending the Litigation.”
ADVANCEMENT
Partial
distribution to a Beneficiary by a Decedent prior to his death of a Legacy, to
thereby reduce the Legacy.
AFTER-BORN CHILD
Child born of a
Testator or Testatrix after he or she has executed a Will in which such child
is unmentioned. See Pretermitted Children.
AGENT
A party who is
authorized to act on behalf of another party.
ANTICONTEST
CLAUSE
A statement in a
Will or Trust which states that any Beneficiary disputing its provisions will
be disinherited or receive a reduced Inheritance. Also known as an In Terrorem
Clause.
ANTILAPSE
STATUTE
Law that
descendants of a Beneficiary who predeceases a Testator can receive the
Inheritance that the predeceased Beneficiary would have received, thus
enabling, for example, grandchildren to receive the Legacy that their parent
would have received upon the death of a grandparent, unless a contrary
intention is expressed in a Will.
AUGMENTED ESTATE
The total of
assets passing under a Will admitted to probate plus assets passing by other
means (e.g., by Trust, by Joint Ownership With Rights of Survivorship, Gifts in
contemplation of death); this total may be used in determining a spouse’s
Elective Share.
AGREEMENT TO
MAKE A WILL
A contract,
usually in writing, by which one party promises to make certain provisions in
his or her Will for the benefit of a second party and the second party promises
something of value in return.
ALIEN
Non-U.S.
Citizen, sometimes treated differently than a U.S. Citizen for U.S. Gift and Estate
tax purposes.
ALIMONY
After divorce,
the obligation of one spouse to pay money to the other for support; sometimes a
debt against the Estate of the paying spouse.
ANATOMICAL GIFT
The donation of
an organ or other body part, sometimes through the use of a Uniform Donor Card,
usually to a medical institution but occasionally to a particular individual.
ANCILLARY
PROBATE
The second or
additional Probating of a Will in a second or additional state in which the
Decedent owned property but did not make his primary home.
ANNUAL GIFT TAX
EXCLUSION
A tax benefit
which allows any individual to make a gift of a Present Interest in property of
a limited amount each year (e.g., $13,000) to another individual free of
federal gift tax. I.R.C Sec. 2503(b).
ANNUITY
1. A
payment made at least annually for a certain number of years or a
lifetime. 2. An investment that returns to the investor an annual
or more frequent payment for a predetermined number of years or a lifetime.
ANNUITY TRUST
A Trust that
pays Income on a yearly basis, without discretion in the Trustee to accumulate
Income; the amount of Income may be fixed or variable.
ANTENUPTIAL
AGREEMENT
A contract made
in contemplation of Marriage which specifies the respective rights and
responsibilities of each spouse.
ANTILAPSE CLAUSE
A provision in a
Will (or Trust) that usually provides that if a Beneficiary dies before the
Testator or Testatrix (or Donor of the Trust), his Inheritance will pass to his
Heirs.
ANTILAPSE
STATUTE
A law that
provides that if a Beneficiary dies before a Testator or Donor, the
Beneficiary’s Inheritance will pass to his or her Heirs.
APPLICABLE
FRACTION
In calculating Generation Skipping Transfer (“GST”) taxes, a
fraction whose numerator is the amount of the GST Exemption allocated to a
Trust, or in the case of a Direct Skip, allocated to the property transferred
in the Direct Skip, and whose denominator is the value of the property
transferred to the Trust, or involved in the Direct Skip, reduced by Estate
Taxes recovered from the Trust attributable to such property, and any
charitable deduction allowed with respect to the property; sometimes thought of
as an “exclusion” ratio or “exemption” ratio from GST taxes. I.R.C. Sec.
2642(a)(2)
APPORTIONMENT
The allocation
or sharing of taxes, debts and expenses among Beneficiaries of an Estate;
sometimes specified in a Will or Trust and sometimes determined by law.
APPRAISAL
The valuation of
an asset, usually by a professional specialist, which may be used in
calculating the value of gifts, gift taxes and estate taxes.
ARBITRATION
The out-of-court
resolution of a dispute by a neutral third party or parties usually following
less formal procedures.
ASSET PROTECTION
TRUST
A Trust in which
the Principal or Interest is unreachable by Creditors of its Beneficiary.
ATTESTATION
CLAUSE
A sentence at
the end of a Will (or Trust) stating that Testator (or Donor) and the witnesses
all signed in the presence of each other.
ATTORNEY IN FACT
The individual
or agent who is given the legal authority to act on behalf of a Principal
through a Power of Attorney.
AUDIO-VISUAL
WILL
A Will executed
before a camera that records the image of the Testator and his oral statements
explaining the terms of his Will and confirming that it reflects his wishes.
AUDIT
(AW dit)
1. noun
An
examination or inspection of financial records. 2. noun An
examination or inspection of an Estate or Trust Accounting usually by a
Certified Public Accountant. 3. noun An examination
or inspection of an Estate Tax Return or income tax return by an IRS agent.
4. verb To conduct any of the foregoing examinations or
inspections.
B
BASIS
The original
cost of an asset, or the original cost adjusted up or down by certain defined
events, e.g., down for depreciation, up for improvements; it may be determined
by cost at the time of original purchase or, in the event of Step-Up in an
Estate, at the time of the Decedent’s death.
BASTARD
A child whose
parents were unmarried (to each other) at the time of his birth and never
married thereafter.
BENEFICIARY
An individual or
an organization that receives a Gift of Income, Principal, the enjoyment or use
of property or other advantage from an Estate or Trust.
BENEFICIAL
INTEREST
The right to the
enjoyment of Trust (or Estate) property; this is separate from the right to
hold title to the property, which right is held by the Trustee of the Trust (or
Personal Representative of the Estate).
BEQUEATH (bee
KWEETH)
To make a Gift
in a Will or Testamentary Trust.
BEQUEST (bee
KWEST)
A Gift in a Will
or Testamentary Trust; a Legacy; an Inheritance.
BOILERPLATE
The words,
sentences and paragraphs in Wills, Trusts and other documents that are
standardized or from forms.
BOND
1. A
guaranty, usually by a financial institution, that a Personal Representative or
other Fiduciary will carry out his, her or its duties properly. 2.
An insurance policy covering losses caused by the breach of a Fiduciary’s
duties. 3. A certificate of debt, usually interest bearing, that
may be held as an asset of an Estate or Trust.
BUY-SELL
AGREEMENT
A contract,
usually between or among partners in a small business, providing for one
party’s purchase of the other’s interest; this contract can control the
disposition of an Estate’s asset.
BY OPERATION OF
LAW
The
determination of rights by the automatic effect of the law, regardless of what
a Will may say. For example, a person may receive sole ownership of a piece of
property automatically, “by operation of law,” when it was owned as Joint
Tenants With Rights Of Survivorship with another person and that other person
dies.
BY-PASS TRUST
A Credit Shelter
Trust in the Estate plan of the first spouse to die. As a result, upon the
death of the second spouse, assets sheltered by the Unified Credit of the first
spouse avoid inclusion in, circumvent or “by-pass,” the Estate of the second
spouse for Estate tax purposes and thus completely avoid Estate taxes in both
Estates.
C
CARRY-OVER BASIS
The Basis of an
asset owned by a Beneficiary which is the same Basis as that of the Donor or
Decedent who gave such asset to such Beneficiary.
CAT TRUST
A trust created
to care for a pet cat.
CAVEAT
A written notice
that may be filed in a Probate court either by any Creditor to prevent Probate
Administration without prior notice to such Creditor or by any person to
prevent either Probate of a Will or administration of an Estate without prior
notice to such person.
CHARGING ORDER
A court order which allows a creditor to attach only distributions rather than all of the ownership rights of a partnership interest.
CHARITABLE TRUST
1. A Trust
for the benefit of the public or some portion of the public.
2. A Fiduciary relationship requiring the holder of assets to administer
it for a charitable purpose.
CHARITABLE LEAD
TRUST
An Irrevocable
Trust which holds assets for both charitable and non-charitable interests. The
charitable interest precedes, or “leads,” the non-charitable Remainder
Interest. A specified amount is paid to charity either for a stated period of
time or during the life of an individual and then the Remainder passes to
non-charitable Beneficiaries, such as the members of the Grantor’s family, or
reverts to the Grantor.
CHARITABLE LEAD
ANNUITY TRUST
A Charitable
Lead Trust in which the amount paid to charity annually is a fixed amount,
usually a percentage of the Principal valued as of the date of the initial
Funding the Trust.
CHARITABLE LEAD
UNITRUST
A Charitable
Lead Trust in which the amount paid to charity annually is a variable amount,
usually a percentage of the principal valued from year to year.
CHARITABLE
REMAINDER TRUST
An Irrevocable
Trust which provides for specified distributions to be made at least annually
to one or more Beneficiaries for life, or for a term usually not more than 20
years, and then for the Remainder Interest to pass to one or more charities.
CHARITABLE
REMAINDER ANNUITY TRUST
A Charitable
Remainder Trust in which the annual or more frequent distributions (the Lead
Interest) to one or more individuals are a fixed amount, usually a percentage
of the principal valued as of the date of the initial Funding of the Trust.
CHARITABLE
REMAINDER UNITRUST
A Charitable
Remainder Trust in which the annual or more frequent distributions (the Lead
Interest) to one or more individuals are a variable amount, usually a
percentage of the principal valued from year to year.
CLAT
Acronym for
“Charitable Lead Annuity Trust.”
CLAIM
An obligation
asserted against any person, an Estate or a Trust.
CLAIMS PERIOD
The time frame
within which Creditors must formally file their Claims in Probate court.
CLOSELY-HELD
COMPANY
A corporation,
partnership, limited liability company or other entity which has shares or
interests that are not publicly-traded, e.g., over a stock exchange, but
usually are owned by members of a family or small group.
CLUT
Acronym for
“Charitable Lead Unitrust.”
CODICIL
A written
amendment to a Will, executed with the same formalities as a Will.
COERCION
The situation
where one person forces another to sign a Will, Trust, Antenuptial Agreement or
other document against his desires; this can form the basis of a Will Contest.
COFIDUCIARY
One who is a
Fiduciary with one or more other persons (or a bank or trust company); for
example, co-Executor, co-Personal Representative, or co-Trustee.
COHABITATION
AGREEMENT
A written
contract between two unmarried individuals who are living together which
specifies their respective property rights and obligations.
COMMON LAW
The collection
or body of court precedents, in contrast to legislative statutes, that may be
considered by judges in making decisions.
COMMON LAW
MARRIAGE
A Marriage based
on the cohabitation of a man and woman over a period of time, usually in which
they present themselves as married, but have not undergone any ceremony or
ritual; abolished in most states, including Florida .
COMMUNITY
PROPERTY
Certain property
acquired by a husband or wife or both during their Marriage which, in some
states, may become owned by both.
COMPLEX TRUST
A Trust with
more than one Beneficiary receiving, or potentially receiving, Income and/or
Principal, or where a Trustee may accumulate Income and add it to Principal.
CONDITIONAL
BEQUEST
A Gift in a Will
or Trust that is carried out only if some specified event occurs or does not
occur; for example, a mother leaves her daughter a painting only if she buys a
house at the time of the mother’s death.
CONSERVATION
EASEMENT
A deed by which
an individual makes a Gift of an Interest in real estate, (e.g., the exterior
façade of a building, open vistas on a ranch, or development rights) to
an organization dedicated to the preservation of historic buildings and/or
land.
CONTINGENCY FEE
A charge by an
attorney to a client based upon a favorable outcome of a case.
CONTINGENT
BENEFICIARY
A Beneficiary
who does not have a Present Interest in an Estate or Trust, and whether such
interest will ever exists depends upon whether a future event ever occurs. For
example, a grandchild may be a Contingent Beneficiary who receives an
inheritance only if his parent predeceases his grandparent.
CONTINGENT
INTEREST
An entitlement
in an Estate or Trust that may or may not be received depending upon whether a
future event ever occurs.
CONTRACT TO MAKE
A WILL
An agreement,
usually in writing, by which one party promises to include certain provisions
in his or her Will and the other party promises something of value in return.
CORPUS
Principal of a
Trust.
CRAT
Acronym for
“Charitable Remainder Annuity Trust.”
CREDITOR
A party to whom
a debt is owed by an individual, Trust, Estate, or other party.
CREMATION
The burning of a
corpse into ashes.
CREDIT SHELTER
TRUST
A Trust that
protects the Testator’s or Donor’s Unified Credit (which exempts a certain
amount of each person’s Estate from estate tax) from inclusion in the future
Estate of a Beneficiary of the Trust, so that assets escape taxation in two
Estates.
CRUMMEY POWER
A provision in a
Trust that gives a Beneficiary the right to demand immediate possession and
enjoyment of property which a Grantor has transferred to the Trust. This power
creates a Present Interest for gift tax purposes and enables the transfer to
the Trust to qualify for the Grantor’s Annual Gift Tax Exclusion. “Crummey”
powers were first authorized in the case of Crummey
v. Commissioner, 397 F. 2d 82 (9th Cir. 1968).
CRUMMEY TRUST
A Trust that
contains Crummey Powers.
CRUT
Acronym for
“Charitable Remainder Unitrust.”
CURATOR
(kyur A tore)
1.
Guardian. 2. A person, bank or trust company appointed to manage an Estate
on a temporary basis until a Personal Representative can be appointed.
CURTESY
The husband’s
right under Common Law to a Life Estate in all or part of his wife’s property
upon her death; mostly obsolete.
CUSTODIANSHIP
The possession
and care of the property of another for safe-keeping when the actual owner is
subject to some Incapacity such as infancy or mental incompetency.
CUSTODIAL
ACCOUNT
A bank or
brokerage account held in Custodianship.
CY PRES
DOCTRINE (sie PRAY)
The principle in
the Administration of a Will or a Trust, that when a charitable plan cannot be
followed for some reason, (for example, a specified charitable beneficiary
ceases to exist), another charitable plan will be pursued that approximates the
charitable intent in the Will or the Trust. “Cy Pres” roughly translates to “as
near as possible.”
D
DEAD MAN ’S
STATUTE
Rule of evidence
that generally prohibits oral statements allegedly made by a deceased person to
be admitted as evidence in Litigation.
DECEDENT (dih
SEE dent)
A dead person.
DEFECTIVE
GRANTOR TRUST
An Irrevocable
Trust in which the Grantor intentionally retains particular control and pays
taxes on income and capital gains, even though such income and capital gains
are distributable to others, usually the Grantor’s children.
DEPENDENT
RELATIVE REVOCATION
The cancellation
of a Will, or provisions within a Will, based on the existence or fulfillment
of a condition that nullifies the Testator’s or Testatrix’s intent with respect
to such Will or such provisions. Under this doctrine, a prior Will may be
reinstated if a subsequent Will was based on Mistake, Fraud or similar problem.
DESTRUCTION OF
WILL
The intentional
Revocation or cancellation of a Will by the physical act of tearing, burning,
cutting, obliterating or mutilating.
DEVISE (dih
VIZE)
1. noun
A
Gift, usually of real estate, under a Will or a Trust. 2. verb
To
make a Gift in a Will or Trust.
DEVISEE (dih
vie ZEE)
The recipient or
Beneficiary of a Devise.
DIRECT SKIP
In Generation
Skipping Transfers, a transfer subject to Estate or Gift taxes of an interest
to a Skip Person. I.R.C. Sec. 2612(c).
DISABILITY OF
NONAGE
Legal Incapacity
due to the age of Minority.
DISCLAIM
1. To
reject a Gift or Inheritance. 2. To file a Disclaimer.
DISCLAIMER
A signed
document filed with a Probate court (usually within nine months), by which a
Beneficiary rejects an Inheritance.
DISCLOSURE
The showing by
one person of all of his or her assets to another person, almost always as a
requirement for a valid Premarital Contract.
DISCOUNT
1. In the
Appraisal of an asset for Gift or Estate tax calculations, reduction in value
due to Lack of Marketability of a Closely-Held Company, a Minority Interest,
Lack of Control or other aspects of the asset that lower Fair Market
Value. 2. In the sale or valuing of a Bond, note or other
instrument of debt, the difference between the face amount and the price.
DISCRETIONARY
POWER
The freedom of a
Trustee to make decisions in distributing or withholding Income and/or
Principal from a Trust to a Beneficiary or among multiple Beneficiaries; this
may be unlimited or it may be limited to health, education, welfare, or other
criteria.
DISCRETIONARY
TRUST
A Trust in which
the Trustee is given Discretionary Power.
DISINHERIT
1. To
intentionally deny a party from an Inheritance under a Will or Trust who would
otherwise be a Beneficiary. 2. To terminate a party’s status as Beneficiary.
DISTRIBUTION IN
KIND
The payment of a
Gift or Legacy through the transfer of an asset like a particular stock or a
piece of land rather than a distribution of cash.
DOG TRUST
A Trust that
provides for the care of a dog.
DOMICILE
The place where
an individual makes his or her permanent, primary residence and to which he or
she always intend to return to as home.
DONOR
The individual who
creates a Trust; the same as Grantor and Settlor.
DOWER
A wife’s Common
Law entitlement to all or part of her deceased husband’s Estate; mostly
obsolete.
DURABLE POWER OF
ATTORNEY
A Power of
Attorney which remains valid even if the person or Principal who gave the Power
of Attorney becomes incapacitated.
DURESS
A state of mind
in which a person is not acting under his or her own volition and is unable to
make a valid Will, Trust or Antenuptial Agreement.
DYNASTY TRUST
A Trust that
provides for successive generations of a family often by the preservation of
Generation Skipping Transfer Tax Exemptions and the avoidance of the Rule
Against Perpetuities.
E
EASEMENT
A right to a
particular use, limited enjoyment or partial control of another’s real
property.
ELECTION AGAINST
WILL
1. The exercise
of a right by a Beneficiary (usually a spouse) to receive assets of an Estate
under law, contrary to the disposition of such assets by the Decedent’s Will.
2. The pursuit of the Elective Share.
ELECTION UNDER
WILL
The acceptance
by a Beneficiary (usually a spouse) of a Decedent’s Will, though its provisions
may run contrary to such Beneficiary’s rights under law.
ELECTIVE SHARE
The right of a
surviving spouse to a share in the Estate of a deceased spouse, which share is specified
by state law, in contravention of the terms of the deceased spouse’s Will.
EMANCIPATION
The freeing of a
child from the legal restraints of Minority.
ESCHEAT
The transfer of
property from a Decedent’s Estate to a state where the Decedent left neither a
Will nor Heirs.
ESTATE
1. The total of
all assets (real estate, cash, bonds, stocks, automobiles, art, jewelry,
partnership interests, etc.) that a person, alive or dead, owns. 2. A legal
entity that arises upon a person’s death which owns his assets and owes his
debts and taxes. 3. A large and/or valuable piece of real estate.
ESTATE TAX
RETURN
Form promulgated
by the Internal Revenue Service, number 706, which must be completed and filed
by the Executor or other authorized representative of an Estate in which all
assets, debts, expenses and other information are described in detail and taxes
calculated. This form is due 9 months from a Decedent’s date of death and is
not required for smaller Estates.
ETHICAL WILL
A letter, opened
after death, to loved ones which expresses thoughts (often sentimental and
sometimes didactic), but does not dispose of assets in contrast to a Last Will
And Testament.
EXECUTOR (eggs
EK u tore)
A Fiduciary,
named in a Will and/or appointed by a court, who collects the assets of a
Decedent, pays debts, expenses and taxes, and distributes Inheritances to
Beneficiaries according to a Will or, if there is no Will, Intestacy laws; same
as Personal Representative.
EXECUTOR DE SON TORT
(eggs EK u tor DAY sawn TORT)
A person who,
without authority, plays the role of an Executor or Personal Representative.
EXECUTRIX (eggs
EK u tricks)
The same as an
Executor, except used for the female gender.
EXEMPT PROPERTY
1. A
Decedent’s household furnishings, up to a limited value, and personal
automobiles that may pass to a surviving spouse or children by operation of law
and exempt from most claims. 2. Assets beyond the reach of Creditor claims.
EXPATRIATION
1. The change of
one’s Domicile to a foreign country. 2. The permanent move to another country.
F
FAIR MARKET
VALUE
The value of an
asset determined by that price that a willing, voluntary buyer would pay and a
willing, voluntary seller would accept in the ordinary course of business or at
arm’s length.
FAMILY
ADMINISTRATION
In some states,
Probate with streamlined procedures available for small Estates.
FAMILY ALLOWANCE
Payment from an
Estate authorized under various state laws for the support and welfare of a
spouse and/or children which may be ordered by a Probate court during Estate proceedings.
FAMILY ASSET
FREEZE
A Gift and
Estate tax-saving technique in which an older-generation family member retains
a non-appreciating interest in a family business and a gives to
younger-generation family member an appreciating interest, so that the value of
the elder’s interest remains flat or constant over time and the younger’s
interest grows and escapes taxation in the older’s estate; the value of gift-
or estate-taxable interests may be reduced by Lack of Marketability, Minority
Interest and other discounts.
FAMILY LIMITED
PARTNERSHIP
The use of a
limited partnership, in which certain partners are general partners and certain
partners are limited partners, as the business entity for a Family Asset
Freeze.
FAMILY-OWNED
BUSINESS EXCLUSION
Deduction
against Estate tax for small business that meet certain IRS requirements.
FIDUCIARY
A person, bank
or trust company given the responsibility of acting for the benefit of another:
a Personal Representative, Executor, Trustee and Guardian each is a type of
fiduciary.
FLIP
Acronym for
“Family Limited Partnership.”
FORCED HEIRSHIP
The right of a
child or Issue to an Interest in a parent’s Estate, irrespective of the terms
of the parent’s Will.
FORCED SHARE
The right of a
spouse to an interest in a deceased spouse’s Estate, irrespective of terms of
the deceased spouse’s Will. See Elective Share.
FOUNDATION
A nonprofit
organization that is established for one or more charitable purposes and
recognized by the I.R.S as qualified to receive tax-deductible contributions.
FRACTIONAL
BEQUEST
A Legacy the
amount of which is determined by the division of assets in an Estate or with
reference to tax aspects, for examples, one-fifth of a stock portfolio,
one-half of the Residuary Estate, one-quarter of the Unified Credit; usually
receiving a proportionate share of appreciation or depreciation of assets.
FRAUD
Intentional
deception that causes a person to execute a Will or Trust with terms which he
or she would not otherwise approve.
FUNDING
The actual
transfer of assets into a Trust; this may differ from the time that a Trust
agreement is signed.
FUTURE INTEREST
Ownership,
enjoyment or entitlement to an asset that commences at some future date; the
interest may be vested or contingent.
G
GENERAL BEQUEST
1. A Gift in a
Will or Trust of unsegregated property. 2. A Legacy of a percentage of a
Residuary Estate.
GENERAL DEVISE
A Gift in a Will
or Trust of unsegregated property, usually real estate; for example, one-half
of a Decedent’s real estate holdings.
GENERAL POWER OF
APPOINTMENT
A Power of
Appointment which may be exercised in favor of any Beneficiary or an unlimited
class of Beneficiaries, or and even a Beneficiary’s Estate, in contrast to a
Special or Limited Power of Appointment.
GENERATION
SKIPPING TRANSFER TAX
Specific type of
tax on a Generation Skipping Transfer. I.R.C. Sec. 2601.
GENERATION
SKIPPING TRANSFER EXEMPTION
A federal
exemption from Generation Skipping Transfer Taxes available to every
individual. I.R.C. Sec. 2631.
GENERATION
SKIPPING TRANSFER
1. Generally speaking,
a Gift, Legacy or Trust distribution from a member of an older generation to a
person two or more generations younger, usually omitting one or more in-between
generations. 2. A Taxable Distribution, a Taxable Termination or a Direct Skip
for which Generation Skipping Transfer taxes may be assessed. I.R.C. Sec.
2611(a).
GIFT
A voluntary
transfer of something of value from a first party to a second party, without
the second party transferring anything to the first party in return.
GIFT CAUSA
MORTIS (kawza MORE tis)
A Gift of
Tangible Personal Property made in anticipation of death, with death as a
condition of the Gift.
GIFT TAX
A federal or
state tax on a Gift, usually owed or paid by the maker of the gift.
GIFTS TO MINORS
See Uniform
Gifts to Minors Act.
GRAEGIN LOAN
A loan to pay estate taxes, the estimated interest on which is deductible if various requirements are met under a tax case by the name of Graegin.
GRANTOR
The individual
who creates a Trust; the same as Settlor and Donor.
GRANTOR RETAINED
ANNUITY TRUST
An Irrevocable
Trust in which the Grantor receives a fixed annual dollar amount for a
specified number of years (i.e., an Annuity) and then Principal passes to one
or more other Beneficiaries designated by the Grantor; usually the fixed annual
dollar amount is a percentage of the Fair Market Value of assets initially
transferred to the Trust.
GRANTOR RETAINED
INCOME TRUST
An Irrevocable
Trust in which the Grantor receives Income for a period of years and then
Principal passes to one or more other Beneficiaries designated by the Grantor,
often members of the Grantor’s family.
GRANTOR TRUST
A Trust in which
all Income is taxable to the Grantor.
GRAT
Acronym for
“Grantor Retained Annuity Trust.”
GRIT
Acronym for
“Grantor Retained Income Trust.”
GROSS ESTATE
For a Decedent
who was a U.S. citizen or resident at death, the value of all property, whether
real or personal, tangible or intangible, and wherever situated, beneficially
owned by the Decedent, to the extent of the Decedent’s interest in the property
at the time of death. I.R.C. Sec. 2033. Treas. Regs. Sec. 20.2033-1(a).
GST
Abbreviation for “Generation Skipping Transfer.”
GUARDIAN
A Fiduciary who
is duty-bound to protect a child or an incapacitated adult.
GUARDIAN AD
LITEM (ad LIE tum)
A Guardian
appointed by a court usually for a specific or limited purpose, such as
protecting unborn Beneficiaries who may have a Future Interest in an Estate.
H
HEALTH CARE PROXY
A written
delegation of authority from an individual to an agent, usually a family
member, to make decisions regarding medical treatment and long term care.
HEALTH CARE SURROGATE
An individual to
whom a Health Care Proxy is given.
HEIR
1.
Descendant or Issue. 2. Anyone receiving or likely to receive an
Inheritance.
HEIR HEAD
An
unsophisticated Heir who needs lots of help managing an Inheritance.
HOLOGRAPHIC WILL
A Last Will And
Testament handwritten by the Testator or Testatrix; it may be valid if it meets
the requirements of the state in which the Testator or Testatrix was Domiciled.
HOUSE GRIT
A Grantor
Retained Income Trust into which the Grantor transfers a personal residence.
HOMESTEAD
A principal
residence in which a spouse and minor children may have rights to ownership
and/or possession, regardless of provisions of a deceased spouse’s Will, Trust
or deed; established in Florida’s state constitution.
HOSPICE
A charitable
organization that assists dying people during their final days, either at its
own facilities, in hospitals or in private homes.
I
IIOMT
Irrevocable income only Medicaid Trust.
INCAPACITY
1.The state of
being unable to manage one’s affairs. 2. The state of lacking mental faculties
necessary to make Testamentary Wishes and execute a Will or Trust with comprehension.
INCENTIVE TRUST
A Trust in which
distributions of Income and/or Principal are made to a Beneficiary when such
Beneficiary reaches specified goals or follows certain values.
INCIDENTS OF
OWNERSHIP
Rights to
control or influence a Trust or an asset that may cause such Trust or asset to
be includable in the Estate of the individual holding such rights.
INCLUSION RATIO
In the
calculation of Generation Skipping Transfer taxes, the excess of 1 over the
Applicable Fraction. I.R.C. Sec.2642(a)(1).
INCOME
The interest,
dividends, rents and other earnings produced by the Principal of a Trust or
Estate.
INCOME IN
RESPECT OF A DECEDENT
Amounts to which
a Decedent was entitled as gross income but which were not properly includible
in computing his taxable income for the taxable year ending with the date of
his death; income earned prior to death but received after death.
INCOMPETENCY
1.
Incapacity. 2. Inability of a Fiduciary or professional advisor to
properly perform his, her or its duties.
INCORPORATION BY
REFERENCE
The description
in a Will of a separate writing, such as a letter or a Trust, which writing is
to be followed in the distribution of certain assets.
INDEPENDENT
REPRESENTATION OF COUNSEL
When two or more
parties hold differing and possibly conflicting interests, the arrangement by
which each party receives legal advice from a separate lawyer or law firm.
INHERITANCE
Property
received from an Estate or Trust upon someone’s death.
INHERIT
To receive
property from an Estate or Trust upon someone’s death.
INSANITY
See Incapacity.
INTANGIBLE
PERSONAL PROPERTY
Property that
has no value in and of itself, but represents value, such as a stock, bond,
certificate of deposit, copyright or patent.
INTENTIONALLY
DEFECTIVE GRANTOR TRUST
See Defective
Grantor Trust.
INTERESTED PARTY
A person or
entity that has a right or responsibility that may be effected by the outcome
of a legal matter or proceeding.
INTEREST
1. Payment for
the use of money. 2. A claim, share or involvement in a legal matter or
proceeding.
IN TERROREM
CLAUSE (in tur ROAR um)
A statement or
paragraph in a Will or Trust that provides that if a Beneficiary contests such
Will or Trust, he forfeits all or part of his Inheritance. Also known as an
Anticontest Clause.
IN TRUST FOR
A clause between
the name of a Custodian or Trustee and his Beneficiary in the titling of bank
and brokerage accounts and other assets; for example, John Doe in trust for
John Doe, Jr. See Totten Trust.
INTER VIVOS
TRUST
A Trust created
between living persons; it may be Revocable or Irrevocable and is in contrast
to a Testamentary Trust, which is created after the death of its creator.
INTESTACY (in
TESS tuh see)
The situation
where an individual dies without a Will and his Estate is managed by a
court-appointed Executor or Administrator and distributed in accordance with
state law.
INTESTATE
SUCCESSION (in TESS tate)
The division
according to state law of an Estate’s assets among a spouse, children, parents
and other family members when a Decedent leaves no Will.
INVESTMENT
POWERS
Provisions in a
Will or Trust that describe investments which the Fiduciary in such document is
authorized make.
IRREVOCABLE
TRUST
A Trust which
cannot cancelled by the creator of the Trust.
ISSUE
Children,
grandchildren, great-grandchildren and more remote, direct, lineal descendants.
ITF
Abbreviation for
“In Trust For.”
J
JOINT ACCOUNT
A bank or
brokerage account owned by two or more individuals or entities.
JOINT OWNERSHIP
The ownership of
an asset by two or more individuals or entities.
JOINT TENANTS
WITH RIGHTS OF SURVIVORSHIP
Ownership of an
asset by two (or more) individuals in which the death of one co-owner
extinguishes his interest, so that the surviving co-owner becomes sole owner
(or the surviving co-owners become sole owners).
JOINT WILL
A Last Will and
Testament executed by two persons and intended to serve as a Will for each.
JTWROS
Abbreviation for
“Joint Tenants With Rights Of Survivorship.”
JURISDICTION
1. The power or
authority of a court to decide a particular case, usually dependent upon the
ties or connections that parties have to the location of the court. 2. The
territory over which a court or judge can properly decide cases.
L
LACK OF CONTROL
DISCOUNT
In the Valuation
of a Minority Interest in a Closely-Held Company, the reduction in value due to
the inability to direct business decisions by achieving automatically a
majority vote.
LACK OF
MARKETABILITY DISCOUNT
In the Valuation
of an Interest in a Closely-Held Company, the reduction in value because of the
difficulty of quickly selling the stock in a Closely-Held Company in contrast
to stock in a publicly-held corporation.
LAPSE
The failure of a
Legacy to take effect when a Beneficiary dies before a Testator or Testatrix, a
Beneficiary executes a Disclaimer or a Beneficiary does not exercise a right to
a Legacy.
LAST WILL AND TESTAMENT
The written
expression of a person’s wishes as to the distribution of his property to take
effect after his death and signed in compliance with the requirements of law.
LEAD INTEREST
In a Trust,
where one Beneficiary receives Income and/or Principal for a period of years,
which ceases, and is followed by a second Beneficiary, the position held by the
first Beneficiary; this is in contrast to the Remainder Interest, the position
held by the second Beneficiary.
LEGACY ( LEG
uh see)
Inheritance.
LEGATEE ( LEG
uh tee)
Beneficiary or
recipient of an Inheritance.
LETTERS OF
ADMINISTRATION
Document signed
by a Probate judge authorizing a Personal Representative to administer or
manage an Estate; called Letters Testamentary in some states.
LETTERS
TESTAMENTARY
See Letters Of
Administration, above.
LINEAL
CONSANGUINITY ( LYNN e ul kon san GWIN I tee)
Relationship of
family members in a direct line of descent, for example, grandfather, father
and son, sometimes relevant in Intestacy.
LIFE ESTATE
Ownership
interest, right to enjoyment, or right to possession which is limited to the
duration of one person’s lifetime.
LIFE TENANT
Beneficiary who
holds a Life Estate in real property.
LIFE INSURANCE
TRUST
An Irrevocable
Trust holding a life insurance policy as its Principal and designed to be
excluded from the Estate of the insured.
LIMITED POWER OF
APPOINTMENT
See Special
Power of Appointment.
LIQUIDITY
In the context
of Estate Administration, the availability of cash, or assets easily
convertible into cash, to pay Estate taxes.
LITIGATION
Contested court
proceedings.
LIVING TRUST
See Revocable
Trust.
LIVING WILL
A document,
varying in form from state to state, by which a person declares that he or she
does not wish to be kept alive by artificial means upon becoming terminally
ill.
LUCID INTERVAL
A temporary
cessation of Incapacity, during which time a Testator or Testatrix may execute
a Will that validly expresses his or her Testamentary Wishes.
LUCKY SPERM CLUB
The group of
individuals fortunate to be born of wealthy parents enabling them to receive
substantial Legacies.
M
MARKETABILITY
DISCOUNT
See Lack Of
Marketability Discount.
MARRIAGE
Legal state
between a man and woman, giving rise to various rights and responsibilities,
which is usually commenced by a ritual or procedure.
MARITAL
DEDUCTION
In computing
Gift and Estate taxes, a deduction for certain transfers between spouses.
MEDIATION
The process by
which two disputing parties attempt to settle or reconcile their differences
through a third, usually neutral, party; usually non-binding, in contrast to
Arbitration.
MEDICAID TRUST
An asset protection device by which an individual places personal assets into a trust which will not be counted toward Medicaid eligibility.
MINOR
1. A person
under the age necessary to vote, hold property and exercise other legal rights
and assume various legal responsibilities. 2. A child.
MINORITY
1. The state of
being a minor or child. 2. The position of a partner or shareholder holding
less than a 50% ownership interest in an entity. See Minority Interest.
MINORITY
DISCOUNT
In the Valuation
of a Minority Interest in a Closely-Held Company, the reduction in value due to
the inability to direct business decisions by achieving automatically a
greater-than-50% vote.
MINORITY
INTEREST
Ownership of
less than 50% of an asset.
MISTAKE
An error in a
Will or Trust that is the legal basis for a Reformation or correction in a
judicial proceeding.
MORTMAIN ACT
A statute or law
whose purpose may include either the prevention of the taking of land out of
commerce or the disinheriting of family members.
MUTUAL WILLS
Two Wills by two
people by which they provide for each other.
N
NET ESTATE
The amount of
Estate assets remaining for distribution to Beneficiaries after the payment of
expenses, debts and taxes.
NET INCOME
Generally, gross
Income minus expenses and taxes.
NET INCOME
MAKE-UP
An alternative
form of a Charitable Remainder Unitrust whereby the Trust pays out annually the
amount of Trust Income for the tax year, to the extent that Income does not
exceed the Unitrust amount for that year, and also pays out any amount of
additional Trust Income for the year to the extent the amounts paid in prior
years was less than the aggregate Unitrust amounts for those prior years.
Treas. Regs. Sec. 1.664-3(a)(1)(i)(b).
NET INCOME MAKE-UP CHARITABLE REMAINDER UNITRUST
A Charitable
Remainder Unitrust with a provision for Net Income Make-Up; see Charitable
Remainder Unitrust and Net Income Make-Up.
NIM-CRUT
Acronym for “Net
Income Makeup Charitable Remainder Unitrust.”
NOBEL, ALFRED
Man who wrote
the Last Will And Testament that created the Nobel prizes.
NO-CONTEST
CLAUSE
See In Terrorem
Clause; also called an Anticontest Clause.
NON COMPOS
MENTIS (non KOM puss MEN tuss)
Not legally
competent; Incapacitated.
NUNCUPATIVE WILL
(NUN kew pa tiv)
Oral Will;
usually invalid.
O
OFFSHORE TRUST
A Trust with a Situs
outside the United States, often an island nation like the Bahamas, Isle of
Man, Cayman Islands, etc.
OMITTED HEIR
Child or Issue
intentionally or accidentally denied an Inheritance in a Will or Trust.
ONE - POT TRUST
1. A Trust
holding Principal and/or Interest for more than one Beneficiary. 2. A
Sprinkle Trust.
ORAL WILL
See Nuncupative
will.
ORGAN DONOR
A person who
makes a gift of his kidney, heart or other organ usually upon his death and
often through his written instructions.
ORGAN DONOR CARD
Written form for
expressing wish that organs be gifted upon one’s death.
OUTRIGHT GIFT
A direct Gift
free of Trust or other restraint.
P
PASSIVE TRUST
A trust in which
the Trustee has no duties, but rather the Beneficiary maintains control; also
known as a “dry” or “naked” Trust.
PAYABLE ON DEATH
A type of account in which the owner designates (usually in a bank or brokerage form) a beneficiary to receive the account upon the owner's death.
PECUNIARY
BEQUEST
A Testamentary
Gift of a certain sum of money.
PER CAPITA
A distribution
system in Wills or Trusts by which surviving lineal descendants receive equal
shares or portions, regardless of their position as child, grandchild or more
remote issue.
PER STIRPES
(purr STIR peez)
A distribution
system in Wills or Trusts by which surviving family members (e.g., a Decedent’s
grandchildren) share only the portion that their predeceased ancestor (e.g., a
Decedent’s child) would have received if he or she had survived.
PERSONAL
REPRESENTATIVE
A Fiduciary,
named in a Will and/or appointed by a court, who collects the assets of a
Decedent, pays debts, expenses and taxes, and distributes Inheritances to
Beneficiaries according to a Will or, if there is no Will, Intestacy laws; same
as Executor or Executrix.
PLEDGE AGREEMENT
A contract,
usually in writing, by which a person legally binds himself and his Estate to
make a certain contribution to a charity.
P.O.D.
Payable on Death
POOLED TRUST
1. Trust in which
multiple parties combine their interests for common management. 2. A Trust
managed by a non-profit organization for disabled persons which in the Omnibus
Budget Reconciliation Act is exempt from transfer of asset rules because,
essentially, principal may be used to eventually reimburse the government for
medical expenses. 42 U.S.C. Sec. 1396(d)(4).
POST MORTEM
ESTATE PLANNING
Analysis and
actions by Executors, Trustees, lawyers, accountants and/or Heirs of a Decedent
regarding the modification of a Decedent’s distribution plan mainly to save
expenses and Estate and/or Generation-Skipping Taxes (through, for example, the
use of Disclaimers, Reformation, etc.) and the making of certain post-death
elections (for example, alternative valuation date).
POST-NUPTIAL
AGREEMENT
A written
contract entered into after Marriage by which a husband and wife fix their
rights and responsibilities in the event of divorce and/or death.
POUR-OVER WILL
A Last Will And
Testament by which all of a Testator’s assets transfer to a Trust usually
established by the same individual prior to his death.
POWER OF
APPOINTMENT
The right to
direct Principal of a Trust to various recipients, usually exercised by
specific provisions in a Will.
POWER OF
ATTORNEY
Authorization,
usually in writing, from one person (the Principal) to act on behalf of another
person (the attorney or agent) in general or limited matters.
POWER OF
INVASION
The
discretionary authority given to a Trustee to distribute Principal of the Trust
to one or more Beneficiaries.
POWERS IN TRUST
CLAUSE
Provisions in a
Will or Trust that enable a Fiduciary to withhold the distribution of assets to
a Minor or incapacitated Beneficiary, and instead retain them in a Trust for
such Beneficiary’s welfare.
PRECATORY
LANGUAGE (PREK uh tore ee)
1.
Instructions in a Will or Trust that encourage a Fiduciary to take certain
actions, but do not legally bind the Fiduciary to such
actions. 2. Words of encouragement in a Will or Trust.
PRECEDENT (PRESS
i dent)
A ruling by a
judge that may be considered by other judges in subsequent cases.
PREMARITAL
AGREEMENT
A written
contract entered into before Marriage by which a husband and wife fix their
rights and responsibilities in the event of divorce and/or death; usually each
is represented by a separate attorney and each discloses to the other complete
financial information. Also called an Antenuptial Agreement.
PREMARITAL
CONTRACT
See Premarital
Agreement.
PRERESIDUARY
BEQUEST OR DEVISE
A Specific
Bequest or Devise distributed after the payment of taxes and expenses but prior
to the division and distribution of the balance or remaining assets of an
Estate.
PRESENT INTEREST
RULE
Law that
requires that a Beneficiary receive a currently Vested Interest for a Gift to
be completed.
PRESERVATION
EASEMENT
See Conservation
Easement.
PRETERMITTED
HEIR (PRET er mi ted)
A survivor or
descendant accidentally omitted by a Testator who, in many states, receives a
share of an Estate based on the distribution that would have been made if the
Decedent died without a Will.
PRETERMITTED
SPOUSE
The husband or wife of a Testatrix or Testator omitted from a
Will because of the occurrence of a marriage after the Will was executed.
PRIMOGENITURE (prime
o JEN i cher)
Ancient right of
eldest son to inherit all of his parents’ assets to the exclusion of his
younger brothers and sisters.
PRINCIPAL
1. Assets
(such as stocks, bonds and real estate) of an Estate or Trust; to be
distinguished from Income earned on such assets. 2. A person who
gives a Power Of Attorney to another person.
PRIVATE ANNUITY
A contract between two parties (usually family members, neither in the annuity industry) in which one party (the annuitant) transfers an asset to another party (the obligor) in return for a series of payments for a term of years or the remainder of the annuitant's life.
PROBATE
1. noun The
process by which a judge determines the validity of a Will, makes certain that
debts, taxes and expenses are paid, oversees distributions to Beneficiaries and
resolves disputes among Interested Parties. 2. verb The act
of submitting a Will or the reporting of an asset to a court with jurisdiction
to supervise the Estate to which the Will or asset pertains.
PRUDENT INVESTOR
RULE
The law
requiring Fiduciaries to use such care and skills as an ordinary, prudent
investor would use with respect to his own property. II Scott on
Trusts, Sec. 174, p. 1408 (3rd. ed. 1967).
Q
QDOT
Acronym for
“Qualified Domestic Trust.”
QPRT
Acronym for
“Qualified Personal Residence Trust.”
QTIP
Acronym for
“Qualified Terminable Interest Property.”
QTIP TRUST
A Trust
qualifying for the Marital Deduction which pays all Income each year to a
surviving spouse, and possibly Principal, and then designates Beneficiaries to
receive Principal upon the surviving spouse’s death; the spouse creating the Trust
is able to select the ultimate Beneficiaries.
QUALIFIED
CONSERVATION ORGANIZATION
A charity,
non-profit organization or government agency that the I.R.S. deems qualified to
accept Conservation or Preservation Easements so that the Donor of such Easement
can receive a charitable deduction. I.R.C. Sec. 170(h)(3).
QUALIFIED
DOMESTIC TRUST
A Trust for a
foreign spouse that qualifies for the Marital Deduction by satisfying the
requirements of a QTIP Trust, but additionally meeting other criteria such as
the use of a domestic Trustee. I.R.C. Sec. 2056A.
QUALIFIED
PERSONAL RESIDENCE TRUST
An Irrevocable
Trust which holds a personal home for a Donor who retains the use of the home
for a lifetime or for a term of years with the Remainder Interest passing to
members of the Donor’s family.
QUALIFIED
TERMINABLE INTEREST PROPERTY
Assets which
meet requirements for the Marital Deduction essentially because all Income is
payable only to a spouse during his or her lifetime and no appointment of any
of the property may be made to anyone other than such spouse. I.R.C. Sec.
2056(b)(7)
R
RABBI TRUST
A deferred
compensation Trust agreement which provides a financial benefit for an
executive (named so, because the trust was approved by the IRS for a rabbi)
that is not subject to immediate income taxation because the Trust assets may
be used to satisfy claims of the employer’s creditors.
REAL PROPERTY
Land and
buildings on it, also known as “Real estate.”
REFORMATION
Court
proceedings by which a judge clarifies or corrects a Will or Trust in order to
make it carry out the Testator’s or Grantor’s intentions.
RELEASE
The act,
implied, orally or in writing, by which one party gives up some right or claim
against another party.
REMAINDER
See Remainder Interest.
REMAINDERMAN
See Remainder Beneficiary.
REMAINDER
BENEFICIARY
An individual or
entity which holds a Remainder Interest usually under a Will, Trust or deed.
REMAINDER
INTEREST
1. In a
Trust, in which one Beneficiary receives Income and/or Principal for a period
of years, which ceases, and is followed by a second Beneficiary, the position
held by the second Beneficiary; this is in contrast to the Lead Interest, the
position held by the first Beneficiary. 2. The Income, Principal or asset to be
received by the final Beneficiary in a succession of Beneficiaries
REMOVAL
PROCEEDINGS
Litigation to
oust a Fiduciary from his, her or its position.
RENUNCIATION
1. The act of
declining an appointment as Personal Representative or Trustee. 2.
The act of rejecting of a Gift, Bequest or Devise. See Disclaimer.
RESIDENCY
The tie of an
individual to a state where he maintains a place of abode, which state may or
may not be his domicile.
RESIDUARY
BEQUEST
A Gift of the
Remainder of a Testator’s Estate, after the payment of debts, administrative
expenses, taxes and Specific Bequests.
RESIDUARY ESTATE
The balance of
an Estate after the payment of Specific Bequests.
REVERSION
The return of an
Interest, after its limited or ineffective conveyance, to the Grantor.
REVIVAL OF WILL
The
reinstatement or revalidation of a prior Will by the Revocation of a subsequent
Will which had previously revoked the prior Will.
REVOCABLE TRUST
A Trust that can
be cancelled or changed by the creator of the Trust; it contrasts with an
Irrevocable Trust
REVOCATION
The act of
canceling all or some part of a Will or Trust.
RIGHT OF
SURVIVORSHIP
In a situation
where two parties jointly own a single asset and designate their co-ownership
as “Joint Tenants With Rights Of Survivorship”, or where a married couple
designates their co-ownership as “Tenants by the Entirety,” the right to sole
ownership that vests in the surviving party upon the death of the other party.
RULE AGAINST
PERPETUITIES (purr peh TOO i teez)
A law
prohibiting Trusts from continuing beyond a certain period of time.
RULE IN SHELLY’S
CASE
A law which
provides that when a Beneficiary receives a Life Estate with his Heirs
receiving the Remainder, the Beneficiary instead receives both the Life Estate
and the Remainder with the Heirs receiving nothing; abolished in most places.
RULES OF
CONSTRUCTION
Various statutes
and cases used to interpret Will, Trusts and other legal documents.
S
SHAM WILL
A Last Will and
Testament which fails to express the Testamentary Intent of the Testator or
Testatrix because it is the product of Undue Influence, Fraud, Incapacity,
forgery or a joke.
SCIN
Acronym for
“Self-Canceling Installment Note.”
SCRIVENER
ERROR (SCRIV i ner)
A clerical
mistake made by the person drafting a Will, Trust or other document; for
example, a typo.
SECOND-TO-DIE
LIFE INSURANCE POLICY
A single life
insurance policy covering two lives, the death benefits of which are payable
upon the death of the survivor (i.e., the end of the second life).
SELF-CANCELING
INSTALLMENT NOTE
A promissory
note that provides that payments from the debtor to the Creditor terminate upon
the death of the Creditor. Abbreviated “SCIN.”
SELF-DEALING
An action by a
Fiduciary that improperly benefits himself.
SELF-PROVING
AFFIDAVIT
A notarized
statement following and affixed to a Will in which the Testator and witnesses
swear that all signed the Will in the presence of each other.
SEPARATE SHARE
RULE
IRS provision by
which different shares of a common trust are treated as separate and distinct
trusts.
SETTLOR
The creator of a
Trust; the same as Donor and Grantor.
SHAM TRUST
A Trust
agreement with a false purpose or inappropriate arrangement that causes the
Trust to be disregarded by the IRS.
SIMPLE TRUST
A Trust with one
Beneficiary receiving all Income and Principal.
SIMULTANEOUS
DEATH CLAUSE
A provision in a
Will or Trust that establishes a sequence of deaths in the event that two
people die in a common disaster which prevents a determination of the actual
order of their deaths.
SIMULTANEOUS
DEATH LAW
Rule in most
states that sets forth distributions from two Decedent’s Estates when the two
Decedents (often husband and wife) die so close in time that the order of their
deaths cannot be determined.
SITUS
1. The
“home” of a Trust. 2. The jurisdiction where assets of a Trust are
located, where a Trustee will administer a Trust or where the terms of a Trust
will be interpreted.
SKIP PERSON
In Generation
Skipping Transfers, a natural person assigned to a generation which is 2 or
more generations below the generation assignment of the Transferor, or a Trust
with Beneficiaries who are 2 or more generations below the generation
assignment of the Transferor. I.R.C. 2613(a).
SPECIAL NEEDS
TRUST
1. A Trust that provides benefits for a disabled person or any
Beneficiary requiring particular care. 2. In the Omnibus Budget Reconciliation
Act of 1993, a type of Trust exempt from transfer of assets rules by meeting
certain requirements that enable a disabled Beneficiary to qualify for and
obtain Federal medical assistance benefits; essential the government must
receive all amounts remaining in the Trust upon the death of the Beneficiary up
to an amount equal to the total medical assistance paid on behalf of the
individual. 42 U.S.C. Sec. 1396p(d)(4)(A).
SPECIAL POWER OF
APPOINTMENT
A Power of
Appointment which may be exercised in favor of a limited group of
Beneficiaries, usually excluding the Estate and Creditors of the person to whom
the power is given, sometimes specifying the group as the spouse, children and
Issue of the appointing person.
SPECIFIC BEQUEST
A Gift in a Will
or Testamentary Trust of a particular item of property or a particular amount
of money.
SPECIFIC DEVISE
A Gift in a Will
or Testamentary Trust of a particular piece of real estate usually, but also a
particular item of property or a particular amount of money.
SPENDTHRIFT
1. noun A person
who spends money wastefully. 2. adj. Wasteful;
lavish. 3. adj. Addressing wastefulness.
SPENDTHRIFT
CLAUSE
A provision in a
Will or Trust that prohibits a Beneficiary from transferring his right to
receive Income or Principal to any other person, usually contemplating his
Creditors.
SPENDTHRIFT
TRUST
A Trust with
provisions that protect a Beneficiary from his own wasteful spending habits or
his Creditors, usually by giving the Trustee the power to moderate the
distribution of Income and/or Principal as necessary for this protection.
SPLIT DOLLAR
INSURANCE
A life insurance
product available to businesses by which premiums are paid by the insured’s
company; upon the insured’s death, the company recovers the total of the
premiums it paid and the insured’s family receives the main death benefit; the
insured receives taxable income for a small fraction of the premiums paid.
SPLIT INTEREST
TRUST
A Trust with two
Beneficiaries, one which first receives Income and/or Principal for a period of
time (the Lead Interest) and the second which subsequently receives Income
and/or Principal (the Remainder Interest).
SPRINGING
DURABLE POWER OF ATTORNEY
A Durable Power
of Attorney that only becomes effective upon the occurrence of a certain event,
usually the Incapacity of the Principal.
SPRINKLE TRUST
A Trust in which
discretion is given to the Trustee to distribute Income and/or Principal among
a group of Beneficiaries, in equal or unequal shares or portions.
STANDBY TRUST
A Trust which is
not Funded and usually will not be Funded until a certain event occurs, such as
a person’s death.
STATUTE OF USES
English law that
makes the recipient of a beneficial interest the absolute owner, eliminating
the intervening position of a Trustee as titleholder.
STATUTORY LAW
Laws enacted by
legislatures, in contrast to Common Law established by court decisions.
STEP-TRANSACTION DOCTRINE
In tax analysis, the treatment of a series of separate steps as a single transaction if the steps are in substance integrated, interdependent and focused toward a single end result. The value of family partnership units transferred to children, immediately following the transfer of assets to the partnership, may be based on the value of such assets rather than the discounted value of the partnership units under this doctrine.
STEP-UP BASIS
The date of
death value of an asset, rather than its actual cost, which may be used in
determining the capital gain tax upon the sale of the asset.
SUCCESSOR
FIDUCIARY
An Executor,
Trustee or Guardian who takes the place, respectively, of another Executor,
Trustee or Guardian.
SUMMARY
ADMINISTRATION
In some states,
Probate with streamlined procedures available for small Estates.
SURVIVORSHIP
See Right Of
Survivorship.
T
TANGIBLE
PERSONAL PROPERTY
Material or
physical assets that have intrinsic value and can be touched and moved, such as
art, jewelry and furnishings.
TANGIBLE
PERSONAL PROPERTY MEMO OR LETTER
Written, signed
instructions, usually addressed to an Executor and Incorporated by Reference in
a Will, directing the distribution of items of Tangible Personal Property upon
the death of the writer.
TAXABLE ESTATE
The value of the
Gross Estate less certain deductions for administrative expenses, debts, taxes,
uninsured casualty losses during Administration, interests which pass to a
surviving spouse and bequests to charity.
TAXABLE
DISTRIBUTION
In Generation
Skipping Transfers, a distribution from a Generation Skipping Trust to a Skip
Person. I.R.C. Sec. 2612(b).
TAXABLE
TERMINATION
In Generation
Skipping Transfers, the termination of an interest in a property held in Trust,
usually resulting in the passing of such interest to a Skip Person. I.R.C. Sec.
2612(a).
TENANTS BY THE
ENTIRETY
Co-ownership of
an asset by a husband and wife with Rights of Survivorship.
TENANTS IN
COMMON
Co-ownership of
an asset without Rights of Survivorship. Upon the death of a owner, his share
may pass to someone other than the other co-owner.
TENANTS WITH
RIGHTS OF SURVIVORSHIP
See Joint
Tenants With Rights of Survivorship.
TESTATMENTARY
INTENT
The true desires
of a Testator or Testatrix which he or she attempts to express through a Last
Will And Testament.
TESTAMENTARY
TRUST
A Trust created
under the terms of a Will so that it is established after the death of the
Testator.
TESTAMENTARY
WISH
See Testamentary
Intent.
TESTATE (
TESS tate)
Description of
an Estate in which a Will has been made by the Decedent, in contrast to an
Intestate Estate.
TESTATOR (tess
TAY ter)
A man who makes
and signs a Will.
TESTATRIX (tess
TAY tricks)
A woman who
makes and signs a Will.
THROWBACK RULES
Tax laws
applicable to foreign Trusts and certain domestic Trusts designed to tax the
Beneficiary of an Accumulation Trust as if the Income had been currently
distributed to the Beneficiary instead of accumulated in the Trust. I.R.C. Sec.
665(c) and Treas. Regs. Sec. 1.665(a)-OA(a)(1).
T.O.D.
Transferable on Death
TORTIOUS INTERFERENCE WITH TESTAMENTARY WISHES
Legal claim
against a party who improperly influenced the making of a Will by a party
adversely effected by such influence.
TOTAL RETURN
TRUST
A Trust which
pays the current Beneficiary a fixed percentage of the Trust’s value, usually
determined annually, and allows the Trustee to invest in assets to maximize
total return whether in the form of income or capital appreciation.
TOTTEN TRUST
A bank account
in which the depositor holds title to an account, can use its funds, but
designates a successor to automatically own the funds upon his death; often the
titling is “John Doe, in trust for John Doe, Jr.”
TRANSFERABLE ON DEATH
A description on an account or security in which the owner designates (usually in a bank or brokerage form) a beneficiary to receive the account upon the owner's death.
TRANSFEROR
For purposes of
Generation Skipping Transfer (“GST”) taxes, a Decedent making a Bequest or
Trust subject to estate tax, a Donor making a Gift subject to gift tax, or the
holder of a General Power of Appointment includible in the Estate of the
holder, which transfers may be subject to GST taxes.
TRUST
An agreement,
usually in writing and signed, where one person (or bank or trust company)
holds property for another person according to the requirements of the
agreement.
TRUSTEE
A party (or bank
or trust company) holding, investing and/or distributing property for another
party in accordance with the instructions of a trust agreement.
TTEE
Abbreviation for
Trustee.
U
UNDERPRODUCTIVE PROPERTY
Assets in a
Trust comprising Principal which generate little or no Income.
UGMA
Abbreviation for
“Uniform Gift to Minors Act.”
UNDUE INFLUENCE
The improper
effect an individual may exert on a Testator that undermines the Testator’s
ability to act freely and voluntarily in making his Will.
UNIFIED CREDIT
The one-time
exemption from Gift or Estate taxes available to everyone for certain amounts.
UNIFORM DONOR
CARD
A written
statement, usually signed and witnessed, by which a person designates body parts
to be given to surviving individuals who need transplants or to institutions
for transplants or medical studies.
UNIFORM GIFTS TO
MINORS ACT
See Uniform
Transfers To Minors Act.
UNIFORM
TRANSFERS TO MINORS ACT
A group of laws,
enacted in some states and based on a national model, which provides for a
custodian to hold assets for a minor child.
UNITRUST
A Trust which makes variable annual payments to a Beneficiary
based on a given percentage of Principal valued each year.
UNRELATED
BUSINESS TAXABLE INCOME
Gross income
derived from any trade or business unrelated to a tax exempt organization’s
charitable, educational or other tax exempt purpose, less allowable deductions
connected with such trade or business, which is subject to income tax.
I.R.C. Sec. 512(a)(1)
UTMA
Abbreviation for
“Uniform Transfer to Minors Act.”
USUFRUCT
A right to use
and enjoy property, but without ownership.
V
VALUATION
Appraisal.
VALUES TRUST
A Trust in which
distributions of Income and/or Principal are made to a Beneficiary when such
Beneficiary conforms to certain values, for example, observing a certain
religion.
VENUE
Among the
various places where Jurisdiction exists, the location where court proceedings
or Litigation should or may take place.
VEST
Verb To confer
an ownership interest in.
VESTED
Adjective Fixed,
complete and not contingent.
VESTED INTEREST
A present right
to an asset, which can be transferred, even though the right may be enjoyed in
the future.
VIRTUAL
REPRESENTATION
Doctrine by
which some interested parties may speak for other interested parties because
their interests are similar, for example parents representing themselves and
the interests of their children.
W
WAIVER
The
relinquishment or giving up of a right or claim.
WASTE
The decrease or
deterioration in the value of an asset, sometimes due to neglect or misconduct
by a Fiduciary.
WILL
See Last Will
and Testament.
WILL CONTEST
A challenge to
the validity of a Will based on Duress, Coercion, Undue Influence, Fraud,
Mistake, failure to sign or execute properly, Tortious Interference or other
claim.
WILL SUBSTITUTE
A Trust that contains provisions effective upon the Grantor’s
death that serve to replace a Will.
X
XORDIUM
CLAUSE (eggs OR dee um)
The introductory
sentence of a Will which announces the Testator or Testatrix and identifies the
writing as his or her Will. For example, “I, John Doe, do hereby make this Last
Will and Testament and revoke all prior Wills and Codicils.”
Z
ZERO GIFT GRAT
A Grantor Retained Annuity Trust in which the value of the
Annuity interest retained by the Grantor equals 100 percent of the value of the
property transferred into the Trust on the date of the transfer, so that any
taxable Gift to the Remainder Beneficiaries of the Trust is eliminated. Walton v. Comm’r, U.S. Tax Court, Case No.
3824-99, December 22, 2000.