Estate Planning Definitions
Annual Gift Tax Exclusion:
Technique to allow gifts without the imposition of estate or gift taxes.
Children's or Grandchildren's Irrevocable Education Trust:
The amount an individual can give away per person each year without the imposition of estate or gift taxes.
Charitable Remainder Interest Trust:
A trust to which a donor transfers property for the benefit of a charity while retaining an income stream from the property transferred. The donor receives a charitable contribution income tax deduction and avoids a capital gains tax on the transfer of the property.
Family Limited Partnership:
An entity used to:
- Protect assets of a partnership from the creditors of a partner.
- Protect limited partners from creditors of the partnership.
- Enable gifts of partnership interests to children while the parents maintain management control.
- Reduce transfer tax value of property.
Fractional Interest Gift:
A transfer of a partial interest in property to a donee at a discounted value for estate and gift tax purposes.
Funding:
The process of transferring assets you own as an individual into your Trust.
Generation Skipping Tax:
A tax levied on assets that are given to individuals who are more than one generation away from the donor. An example would be a grandparent giving an asset to a grandchild either during the grandparent=s life or at death.
Guardianship/Conservatorship:
A court-supervised proceeding which names an individual or entity to manage the affairs of an incapacitated person. A guardianship may also include the duty to care for the incapacitated person.
Health Care Power of Attorney:
An instrument used to designate the person to make health care decisions for you should you become incapacitated.
Irrevocable Life Insurance Trust:
A Trust used to prevent estate taxes on insurance proceeds received at the death of an insured.
Joint Tenancy:
Property held jointly with rights of survivorship by two or more people. Upon the death of one of the owners, all of his or her interest in the property is transferred immediately to the surviving owners.
Living Will:
A document giving directions for your medical care if you become terminally ill or are in a permanent coma and unable to communicate your wishes. Some states have combined this into the advanced health care directive. It is sometimes called a physician=s directive.
Pour Over Will:
A document protecting against intestacy in the event any assets have not been transferred into the Trust at the death of the Trustor/Owner. Its function is to Apour@ any assets left out of the Trust into the Trust so they are ultimately distributed according to the terms of the Trust. It is also used to name a guardian for minor children.
Private Foundation:
An entity used by higher net worth families to receive any otherwise taxable property in order to eliminate estate taxes on the death of a surviving spouse.
Probate:
The court procedure used to change title to assets from the name of an individual who has passed away into the name of the living beneficiaries. It is also the procedure where all creditors of a decedent file claims to collect their debts and where interested parties who have a complaint regarding the disposition of the estate can file their complaint (a Will contest.) An individual who passes away with a Will or without an estate plan will go through this process.
Property Power of Attorney:
An instrument used to designate an agent you name to manage your property if you become incapacitated.
Revocable Living Trust:
A device used to avoid probate and provide management of your property during your life and after your death.
Step-up in Basis:
A step-up — or step-down — in basis is an adjustment for tax purposes to an asset's fair market value at the date of the death of the owner of the asset. For example, if you bought a share of stock for $100 that increased in value to $500 at the time of your death, your tax basis was $100 but increases to $500 at the time of death.
Trustee:
A person who holds legal title to trust assets for the benefit of the trust beneficiaries. While you are alive, you may act as your own trustee. For married couples, either one or both spouses may act as trustee or co-Trustees. The successor Trustee is an individual or corporate fiduciary you designate to be in charge of your Trust in the event of your disability or upon your death.
Will:
A legally enforceable declaration of how a person wishes his or her property to be distribution after death. In a Will, a person can also nominate a guardian for his or her children.
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