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1658 Cole Blvd., Building 6, Suite 200, Lakewood, CO 80401
7887 E. Belleview Ave, Suite 820, Denver, CO 80111

Call Us: (303) 670-9855

1658 Cole Blvd.,Building 6, Suite 200
Lakewood, CO 80401
7887 E. Belleview Ave, Suite 820,
Denver, CO 80111

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Glossary (A-F)

A

A/B TRUST (OR WILL) PLAN
A Trust Model typically used by married couples with estate sizes that are over the state tax exemption amount. In this type of will or living trust, two trusts (trust A and trust B) are created at the time the first spouse dies. By dividing the couple’s estate into trusts at the first death, each spouse can pass the maximum amount of property allowed to avoid federal estate taxes. After the law changes in 2012, that allow portability for estate tax minimization this type of planning is less necessary.

ABATEMENT
A proportional diminution of pecuniary legacies when the funds or assets out of which legacies are payable are not sufficient to pay them in full. In other words, when the total gifts from an estate’s funds or assets equal more than is actually available. In this case, each beneficiary’s share may be reduced proportionally, or the will or trust may state the order in reduction.

ADEMPTION
This is what happens to a gift or bequest when the item to be distributed from an estate no longer exists. For example, if a deceased person gave away a “red car,” but on their death there was no red car in their estate, the “red car” adeemed (or went away). Sometimes this is confused with “Abatement.” See definition above. A will or trust may address this through an ademption clause.

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

ADJUSTED GROSS INCOME (AGI)
An interim calculation in the computation of income tax liability. It is computed by subtracting certain allowable adjustments from gross income.

ADMINISTRATOR
A person appointed by the court to settle an estate when there is no will.

ADVANCED MEDICAL DIRECTIVE

See “Living Will”

ADOPTION
Legal process pursuant to state statute in which a child’s legal rights from the natural parents are terminated and similar rights and duties toward their adoptive parents are substituted.

AFTER TAX RETURN
The return from an investment after the effects of taxes have been taken into account.

ALTERNATIVE MINIMUM TAX
A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was intended to ensure that individuals, trusts, and estates that benefit from tax preferences do not escape all federal income tax liability. People must calculate their taxes both ways and pay the greater of the two.

ANNUAL EXCLUSION (OR ANNUAL PER DONEE GIFT TAX EXCLUSION)
A gift tax exclusion of $15,000 per done for single donees and $30,000 per donee for married couples who agree to share their exclusions for gifts made in 2020. The gift must be of a present interest. Direct payments for medical or tuition expenses do not impact or reduce the annual exclusion gifts one can make.

ANCILLARY PROBATE ADMINISTRATION
Probate administration in a jurisdiction other than the Decedent’s domicile.

APPORTIONMENT
The method by which a tax liability- typically estate tax — is shared by the beneficiaries of an estate.

ASSET
Anything owned that has monetary value.

ASSET PROTECTION PLANNING
The term “asset protection” has traditionally been used in referring to techniques that offer protection from the claims of personal and business creditors. However, today the term is used to describe a wide array of planning techniques, including those intended to reduce or eliminate income and estate taxes as well as claims from future creditors. These techniques can range from the fairly simple to the very complicated, but are premised on deterring potential creditors from going after you and/or your heirs, generally by making it difficult or impossible to access your assets or collect judgments against you. Asset protection techniques must be implemented before the need for it arises.

ASSIGNMENT
Method by which the owner of an asset transfers ownership of the asset to another person or entity.

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

B

BENEFICIARY
An individual, institution, trustee or other entity designated in a will or trust to receive something of value.

BEQUEST
A gift of personal property made in a will or trust.

BOOK VALUE
The net value of a company’s assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals the book value per share, which may be higher or lower than the stock’s market value.

BUSINESS EXIT PLANNING
Business Exit Planning is the process that a business owner or owners develop to systematically exit their business in a manner that will allow them to achieve their financial and family goals. For most business owners this requires them to focus on: 1) when they want to leave the business, 2) who they want to leave or sell the business to (insiders or third party buyers), and 3) how much recurring after tax income do they need or want. After goals are set, exit planning focuses on operational and tax issues related to selling the business, contingency plans in the event that the owner becomes disabled or dies during the exit process and estate planning in the event that the owner dies or chooses to pass the business on at his death.

BUY-SELL AGREEMENT
A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.

C

CAPITAL GAIN OR LOSS
The difference between the sales price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When the difference is negative, it is a capital loss.

CASH SURRENDER VALUE
The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage. Policyholders are usually able to borrow against the surrender value of a policy from the insurance company. Policy loans that are not repaid will reduce the policy’s death benefit and cash value by the amount of any outstanding loan balance plus interest.

CHARITABLE LEAD TRUST
A trust established for the benefit of a charitable organization under which the charitable organization receives the “lead” or income interest for a term of years or for the grantor’s lifetime. Upon the termination of the income interest the trust balance transfers to the grantor or to his or her designated beneficiary or beneficiaries. This type of trust can reduce estate taxes and allows the grantor’s heirs to retain control of the assets.

CHARITABLE PLANNING
Charitable estate planning combines philanthropic, financial, estate and tax planning. It is a process that can help you make gifts to causes important to you, often with tax and financial rewards.

CHARITABLE REMAINDER TRUST
A trust established for the benefit of a charitable organization under which the grantor or other named beneficiary(ies) receives income from an asset for their lifetime or lifetimes or for a term of years. At the death of the income beneficiary or beneficiaries or at the end of the term of years, the trust balance transfers to the charitable organization. The grantor receives a charitable contribution deduction in the year in which the trust is established, and the assets placed in the trust may avoid capital gains taxes.

COBRA
The Consolidated Omnibus Budget Reconciliation Act is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for 18 months at the employee’s expense. Coverage may be extended to the employee’s dependents for 36 months in the case of divorce or death of the employee.

CODICIL
A written addition or amendment to a will. This must be executed according to all of the formalities that govern a will itself to be valid.

COMMUNITY PROPERTY
State laws vary, but generally in community property states all property acquired during marriage is considered community property, and each partner is entitled to one half. This includes debt accumulated. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, Alaska is an elective community property state.

COMPOUND INTEREST
Interest that is computed on the principal and on the accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.

CONSERVATOR
An individual appointed by a court to manage the affairs of an adult who is no longer competent. Also a person appointed by a court to manage the assets of a minor.

CONSERVATORSHIP
Court process whereby a conservator is appointed by the court to manage the monetary affairs of a person who is unable to manage his/her own affairs.

CONTINGENT BENEFICIARY
Beneficiary of a trust or will who is entitled to receive certain property only if a prior condition is met, such as if the primary beneficiary dies or otherwise is rendered unable to take the property.

CORPUS OF A TRUST
Literally “the body” of the trust. This is used to refer to the money or property placed in a trust and is distinguished from the income produced by the trust.

CRUMMEY NOTICES or CRUMMEY LETTERS (FOR TRUST)
When a Trustmaker intends to make gifts to an irrevocable trust in the future for estate tax planning purposes, it is common for the trust to include a withdrawal right provision whereby when a gift is made to the trust, the trust beneficiaries must be notified that they have the right to withdraw the gift amount for a short period of time (often thirty days) after which their right to withdrawal lapses. The purpose of this withdrawal provision and notice requirement is to allow the gift to qualify as a “present interest” gift, thus allowing the gift to qualify under the Donor’s Annual Gift Exclusion. By allowing the gift to qualify for the Annual Gift Exclusion, the Donor may not use up their Unified Credit Amount (Applicable Exemption Amount) that would otherwise be available to reduce the Donor’s estate taxes at death.

CRUMMEY TRUST
An irrevocable trust in which a beneficiary possesses a right to withdraw some or all of the property contributed for a period of time (usually 30 days), after which time the power lapses and the property is governed by the terms of the trust document; the beneficiary’s right to withdraw is considered a gift of a present interest for gift tax purposes, thereby qualifying contributions for the gift tax annual exclusion; irrevocable life insurance trusts (see below) are usually Crummey trusts. The name “Crummey” originated from an old tax court case that held that such withdrawal rights and notice provisions in an irrevocable trust could allow gifts to that trust to qualify as present interest gifts. Crummey Notices or Letters are often used in Irrevocable Life Insurance Trusts (ILITs) to allow the Trustmaker to make annual gifts to cover insurance premiums for insurance on his or her life that is owned by the Trust with the trust as owner and beneficiary of the insurance policy.

D

DECEDENT
A person who died.

DEDUCTION
An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.

DEFINED BENEFIT PLAN
A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments. Annual contributions may be made to the plan by the employer at the level needed to fund the benefit. The annual contributions are limited to a specified amount, indexed to inflation.

DEFINED CONTRIBUTION PLAN
A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee’s compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee’s account.

DEVISE
Refers to an inheritance under a will, or when used as a verb, to dispose of property by will.

DEVISEE
A person or entity designated in a will to receive a devise.

DIRECTED TRUSTEE
Under State law in Colorado, a trustee who serves in a limited role and has only a portion of the responsibilities of a trustee. In this scenario, a directed trustee would be one who’s responsibilities under a trustee are directed to a portion of the total responsibilities.

DIRECT SKIP
An outright generation-skipping transfer, either by gift or at death, to a recipient, known as a “skip person”, who is two or more generation levels below the transferor. This type of property transfer prompts the generation-skipping transfer tax.

DISINHERIT
To cut a person off from his or her inheritance in an estate where he or she would have been a natural heir.

DISTRIBUTION TRUSTEE
The role of a directed trustee who’s only responsibility is that of whether to allow or deny distributions. Use of an independent Distribution Trustee may provide a layer of asset protection for beneficiaries.

DOMICILE
The state of a person’s principal residence. An individual’s domicile determines which state law applies to their estate. Each person can have only one domicile. Generally determined based on where the individual intended to make their permanent home.

DONEE
One who receives a gift.

DONOR
An individual who makes a gift. Also referred to as a trustor, grantor or settlor in certain circumstances.

DSUE
The role of a directed trustee who’s only responsibility is that of whether to allow or deny distributions. Use of an independent Distribution Trustee may provide a layer of asset protection for beneficiaries.

DURABLE POWER OF ATTORNEY
A written legal document that lets an individual designate another person to act on his or her behalf, in the event the individual becomes disabled or incapacitated.

DURABLE POWER OF ATTORNEY FOR HEALTH CARE
A written legal document that gives another person the authority to act on the author’s behalf in making health care decisions.

E

ELECTIVE SHARE
The portion of a decedent’s estate that a surviving spouse can elect to receive if the amount left to the surviving spouse does not meet a minimum statutory amount. In most states the surviving spouse must make the election during the first nine months after the decedent’s death. A premarital or post-marital agreement can address this right in its terms.

EMPLOYER-SPONSORED RETIREMENT PLAN
A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k) plans, 403(b) plans, simplified employee pension plans, and profit-sharing plans.

EQUITY
The value of a person’s ownership in real property or securities, calculated by taking the market value of a property or business and subtracting all claims and liens against it.

ERISA
The Employee Retirement Income Security Act is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be adequately funded and provide for vesting, survivor’s rights, and disclosures.

ESCHEAT
The process by which a decedent’s property is transferred to the state government in which the individual was domiciled. This happens when the decedent dies intestate (without a will or trust), and without heirs.

ESTATE
An entity consisting of a person’s property and all the rights and responsibilities relating to it. A Personal Representative administers an estate.

ESTATE CONSERVATION
Activities coordinated to provide for the orderly and cost-effective distribution of an individual’s assets at the time of his or her death. Estate conservation often includes the use of wills and trusts.

ESTATE (DEATH) TAX
Upon the death of a decedent, federal and some state governments impose taxes on the value of the estate left to others (with limitations). Any death tax levied by a non-federal government (e.g. a state) upon the takers of the property as opposed to the estate as a whole (see estate tax). Colorado does not currently have an inheritance or state estate tax.

ETHICAL WILL

An Ethical Will is a document that passes ethical values from one generation to the next. It is a personal document that is created to communicate your values, experiences, and life lessons to your family.

EXECUTOR/EXECUTRIX
The person (male/female) named in a will to manage a decedent’s estate. The more modern term is a “personal representative” which removes any reference to the sex of the person.
401(k) PLAN
A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.

403(b) PLAN
A defined contribution plan that may be established by a nonprofit organization or school for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.

F

FAMILY LIMITED PARTNERSHIP
A limited partnership in which one or more family members own partnership interests.

FEE SIMPLE OWNERSHIP
Outright ownership of property with absolute use during life, and outright ownership of property with absolute right to use during life, and right to dispose of or gift it to anyone during life or upon death.

FIDUCIARY
A person with the legal duty to act primarily for another’s benefit in a position of trust, good faith, candor, and responsibility.

FIDUCIARY DUTY
The duty of a fiduciary to act in a position of trust, good faith, candor and responsibility, on behalf of another. The duty is one of the highest defined responsibilities under the law and is very strictly enforced by the courts.

FUNDING
The process of transferring ownership or title of a trust maker’s assets into a trust by signing a new real estate deed, changing beneficiary designations, assigning personal property, leases, corporations or partnerships, changing title, changing ownership of financial accounts, etc.

FUTURE INTEREST
An ownership interest in property in which unlimited possession or enjoyment of property is delayed until some future time.

 Glossary G-K

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