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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

A/B TRUST
A Trust Model typically used by married couples with estate sizes that are over the state tax exemption amount. In this type of 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.

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.

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.

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.

G

GENERAL POWER OF APPOINTMENT
The power given to a person, by appointment in a will or a trust, to distribute the property that passes through the will or trust at the discretion of the person appointed. Other than to give the appointed person the authority to make the distribution, the will or trust does not make distribution of the property.

GENERAL POWER OF ATTORNEY
A legal document that gives one person (the agent) the legal authority to act on behalf of another (the principal). The scope of the document can be as broad or narrow as the principal desires. A general power of attorney becomes invalid when the principal dies. See also “Power of Attorney.”

GENERATION-SKIPPING TRANSFER
A transfer to a grandchild or other individual who is at least two generations (or for unrelated persons where the transferee is 37.5 years younger than the donor) below that of the Grantor, or to a trust for the benefit of such individuals, upon which a Generation-Skipping Transfer Tax may be imposed.

GIFT
A gratuitous transfer of property to someone else without receiving adequate consideration in return.

GIFT TAXES
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. Single donors are allowed to make gifts up to $15,000 per donee in 2020. By agreement, couples may make gifts up to $30,000 per married couple in 2020. Gifts above the annual exclusion amount reduce the amount of the donor’s applicable exemption amount. Aggregate gifts above $11,580,000 million (in 2020) will result in gift taxes due. Some states also impose a gift tax. The Annual Gift Exclusion is indexed annually for inflation.

GRANTOR
In trust usage, the person who creates a trust (also known as Grantor, settlor or trustmaker).

GRAT
The Grantor Retained Annuity Trust (“GRAT”) is a type of irrevocable trust that permits the Grantor to make a lifetime gift of assets to an irrevocable trust in exchange for a fixed payment stream for a specified term of years. At the end of the term of years, the balance of the trust property is transferred to the remainder beneficiaries named in the trust, typically children or grandchildren. The Grantor Retained Annuity Trust may reduce estate taxes by removing assets from those that are counted in the Grantor’s estate for estate tax purposes if the Grantor outlives the specified term of years.

GROSS ESTATE
The total value of all property owned by a decedent at the time of his or her death.

GUARDIAN
A person appointed by a court to the care for a minor or incapacitated person. The guardian may or may not also serves as conservator of the minor’s estate.

GUARDIANSHIP
A court proceeding in which the Court determines whether a person is so incapacitated, due to lack of capacity or lack of legal age, that s/he needs a guardian appointed to make decisions related to a person’s wellbeing.

H

HEALTH CARE POWER OF ATTORNEY/MEDICAL POWER OF ATTORNEY
A grant of power to a person to make or carry out the decision of the signor of the instrument, under terms of a state law, when one is unable to make decisions concerning selection of health care providers, treatment options, pain control and implementation of a Living Will/Medical Proxy.

HEIR
A person who inherits something from a Decedent under a state intestacy statute in circumstances where the decedent died intestate (without a will or with a will that did not fully dispose of the Decedent’s assets). Heirs receive notice of probate court actions even if the decedent had a will.

HEIRS
Those persons who are entitled under the statutes of intestate succession to the property of a decedent. Also used to refer generally to beneficiaries of a will. Also known as “next of kin”.

HIPAA
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the U.S. Congress in 1996. Title II of HIPAA, known as the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans, and employers. The Administration Simplification provisions also address the security and privacy of health data. The standards are meant to improve the efficiency and effectiveness of the nation’s health care system by encouraging the widespread use of electronic data interchange in the US health care system HIPAA restricts the ability of health care providers to disseminate “Protected Health Information” without authorization. Health Care Powers of Attorney should contain a “HIPAA Authorization” allowing health care providers to communicate with the designated agent or agents. Alternatively, a separate Standalone HIPAA Authorization may be used to augment a Health Care Power of Attorney not containing a HIPAA Authorization.

HOLOGRAPHIC WILL
A handwritten will, authorized in a few states including Colorado.

HOMESTEAD LAWS
State laws which entitle a surviving spouse or minor children to certain assets of the decedent’s estate.

I

INCAPACITY
The lack of ability to act on one’s own behalf. One who lacks capacity is generally unable to execute a testamentary plan.

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

INCOME IN RESPECT OF A DECEDENT
Income earned by a decedent or income to which the decedent had a right prior to death, but which was not properly includible in his or her gross income prior to death.

INHERIT
To receive property from a deceased person.

INSURANCE TRUST
An irrevocable trust used to hold insurance and pass it on to beneficiary without any estate taxes on the death benefits of the policy. Sometimes referred to as an Irrevocable Life Insurance Trust (ILIT).

INTER VIVOS
Literally means during life. Refers to transactions, such as gifts or trusts, made during a person’s lifetime.

INTER VIVOS TRUST
Legal name for a “between the living” trust. The trust is set up by a grantor during his or her lifetime.

INTESTATE SUCCESSION
The distribution of property to heirs according to the statutes of the state of residency upon the death of a person who owned the property, but who did not leave a valid will.

IRREVOCABLE TRUST
A trust that cannot be changed or terminated after it is established. In Colorado, court intervention can be used in limited circumstances to alter or change an Irrevocable Trust. However, the process must comply with the state statue and often involves legal expertise.

INTESTATE
The condition of an estate left by a decedent without a valid will. State law then determines the disposition of the property to individuals based on his/her legal relationship to the decedent.

J

JOINT TENANCY (Joint Tenancy with Right of Survivorship, JTWROS)
Co-ownership of property by two or more people in which the survivor(s) receives ownership of the decedent’s interest, upon one of the owner’s deaths.

JOINT AND SURVIVOR ANNUITY
Many pension plans offer this form payout that pays over the life of the retiree and spouse after the retiree dies.

JOINTLY HELD PROPERTY
A broad description of property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property or tenancy by the entirety.

L

LIABILITY
Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.

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.

LIMITED LIABILITY COMPANY (LLC)
An entity formed under state law that has the legal protection of owners similar to a corporation and the tax status of a partnership.

LIMITED PARTNER
A partner in a limited partnership not involved in the active management of the enterprise.

LIVING WILL
A document defining your end of life treatment. It usually states that an individual does not want to have their life artificially prolonged by modern medical technologies. An individual can specifically define the means which they want used or do not want used. A more descriptive term is Advanced Medical Directive.

LIVING “INTER VIVOS” TRUST
A revocable trust created by a person during his or her lifetime that provides instructions on how and when trust property should be distributed to beneficiaries during the trustmaker’s lifetime and thereafter. Inter vivos is Latin for “between the living.” Generally, a trust in which the creator reserves the right to modify or terminate the trust.

M

MARITAL DEDUCTION
A provision of the Internal Revenue Code that allows assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also sometimes referred to as the “Unlimited Marital Deduction.”

MEDICAL DIRECTIVES
These directives pertain to treatment preferences and the designation of an agent decision-maker in the event that a person should become unable to make medical decisions on their own behalf. Medical Directives generally refer to a Health Care Power of Attorney (Health Care Proxy) and a Living Will (Advanced Medical Directive).

MINOR
A child who is not old enough to have the legal capacity to govern his or her own affairs. Depending upon the specific state and the specific laws being applied, a minor is usually either under 21 years old or 18 years old.

MONEY MARKET FUND
A mutual fund that specializes in investing in short-term securities and tries to maintain a constant net asset value of $1 per share. Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money when investing in a money market fund.

MUNICIPAL BOND
A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Some municipal bond interest could be subject to the federal alternative minimum tax. If you sell a municipal bond at a profit, you could incur capital gains taxes. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.

N

NOTARY PUBLIC
A person who has state granted authority to certify the validity or authenticity of the signature being made on a document.

O

OUTRIGHT DISTRIBUTION
A disbursement of assets directly to beneficiaries, with no legal restrictions regarding how or when the money is used. Provides no asset protection and leaves beneficiaries vulnerable to creditors and predators (disgruntled spouses).

P

PARTNERSHIP
A type of unincorporated business organization in which multiple individuals, called general partners, manage the business and are liable for its debts. This is also statutorily defined by different states under state law.

PAY-ON-DEATH (POD)
Designation is the naming of a beneficiary to receive an account balance on a party’s death.

PER CAPITA
Per capita at each generation is an alternative way of distribution, where heirs of the same generation will each receive the same amount. The estate is divided into equal shares at the generation closest to the deceased with surviving heirs. The number of shares is equal to the number of original members either surviving or with surviving descendants. Each surviving heir of that generation gets a share. The remainder is then equally divided among the next-generation descendants of the deceased descendants in the same manner.

PER STIRPES
The most common way of distributing an estate such that if one of the children is dead, his or her children share equally in his or her share. Also known as By Right of Representation.

PERSONAL PROPERTY
Personal Property is property that is not Real Property. “Tangible” personal property means property that you can touch. “Intangible” personal property refers to financial assets such as stocks, bonds, bank accounts, insurance, etc. Items of a sentimental nature to be distributed at death using a “side list” or a “Tangible Personal Property Memorandum”.

PERSONAL REPRESENTATIVE
A person or institution appointed by the Court (nominated in a will, if any) to administer the Decedent’s estate. Formerly known as Executor (for a will), or Administrator (without a will)

PET PLANNING
Planning for the ongoing future care of pets after the owner(s) is/are deceased. Examples may include a Pet Trust.

POUR-OVER WILL
A Last Will & Testament executed by a testator (male will maker) or testatrix (female will maker), in the presence of two witnesses, which sets out that all property owned by the testator should be transferred at his or her death to a trust. Thus, the probate estate “pours over” into the trust estate.

POWER OF APPOINTMENT
A right held by one person to designate who shall possess or enjoy property that person does not own. For example, a trust may give an income beneficiary (such as a surviving spouse) the right to designate the remainder of the trust assets at the end of the trust to a specified class of beneficiaries, such as “among my children.” Estate and gift taxation of powers of appointment is governed by I.R.C. §§ 2041 and 2514.

POWER OF ATTORNEY
A grant of power by a principal to a person (agent) to make or carry out the decisions of the signer of the instrument. The grant of power can be limited or all encompassing, but the Agent’s authority under the power of attorney expires upon the death of the principal. A power of authority may grant the Agent immediate authority to act . Alternatively, a Power of Attorney may defer the Agent’s authority to act until an ascertainable event has occurred such as the disability of the principal. A Power of Attorney containing this type of provision is often referred to as a “springing Power of Attorney” because the agent’s authority “springs to life” in the future.

PRENUPTIAL AGREEMENT
A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of a divorce. Often contains provisions limiting maintenance and spousal elective share. This may also be referred to as a “pre-marital agreement.” ERISA benefits are not affected by prenuptial agreements.

PRETERMITTED CHILD
One who may, under certain circumstances, become an heir by birth or adoption subsequent to the date of execution of a testator’s will.

PRIVATE FOUNDATION
A nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.

PROBATE COURT
The state court with jurisdiction to handle the probate of an estate and related legal matters such as guardianships and conservatorships.

PROBATE
The legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property under a valid will. The Personal Representative, or if necessary a Court, interprets the instructions of the deceased. The Personal Representative is appointed as the legal title holder of the estate, and is responsible for administering the interests of heirs and other parties who may have claims against the estate.

PROFIT-SHARING PLAN
An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employee’s accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.

Q

QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee’s ERISA retirement plan accrued benefits be divided between the employee and the spouse.

QUALIFIED PERSONAL RESIDENCE TRUST (QPRT)
A Qualified Personal Residence Trust (“QPRT”) is a type of trust which permits the Trustmaker to transfer a qualified residence to a trust and retain use of the residence for a period of years. After the period of years, the residence passes to the remainder beneficiaries. This technique is often used to allow the Trustmaker to use the residence for a period of years while removing property appreciation from the Trustmaker’s taxable estate, if the Trustmaker lives beyond the period of years specified in the Trust.

QUALIFIED TERMINABLE INTEREST PROPERTY (QTIP)
An irrevocable trust for the benefit of the grantor’s spouse which qualifies for the gift and/or estate tax marital deduction, must provide that the spouse receives all of the trust accounting income at least as often as annually for life (e.g., cannot provide for reduction or cessation of income interest in the event of a spouse’s remarriage) and that no other person has any interest in the trust while the spouse is alive; principal benefit is that the grantor can control the disposition of the trust property at the spouse’s death and still obtain the gift and/or estate tax marital deduction.

R

REAL PROPERTY
Land, and generally whatever is erected or growing upon or affixed to land. Also rights issuing out of, annexed to, and exercisable within or about land. A general term for lands, tenements, and hereditaments; property which, on the death of the owner intestate, passes to his heir. Also included mineral and water rights.

REMAINDERMAN
One entitled to the remainder of an estate after a particular reserved right or interest has expired.

REVOCABLE LIVING TRUST
A revocable trust created by a person during his or her lifetime that provides instructions on how and when trust property should be distributed to beneficiaries during the trustmaker’s lifetime and thereafter. Inter vivos is Latin for “between the living.” A trust in which the creator reserves the right to modify or terminate the trust.

RIGHT OF SURVIVORSHIP
A right as to property owned as joint tenants or as tenants by the entirety, whereby one or more joint owner succeeds to the interest of a deceased joint owner.

S

SCIN
An SCIN (self canceling installment note) is an installment debt obligation that, by its terms, is extinguished at the death of the seller. It is similar to a private annuity in that an asset is sold to the child on an installment basis. However, with an SCIN, the installments are shorter than the seller’s life expectancy and the child usually would pay a “risk premium” in the form of an above-market interest rate to the parent as consideration for the cancellation provision. Generally, nothing will be included in the seller’s gross estate, but any deferred gain on the installment obligation will be reported on the seller’s estate income tax return.

SEPARATE PROPERTY
In community property states, all property which is not held commonly by a married couple is considered separate property. In general, it is property owned by one spouse in which the other spouse does not own an interest.

SETTLOR
A person who establishes a trust. The term settlor is used interchangeably with the terms “trustor” and “grantor” and trust maker.

SPENDTHRIFT
An individual who cannot handle money wisely and spends it wastefully.

SPENDTHRIFT TRUST
Trust designed to provide for the needs of a spendthrift while protecting the corpus of the trust.

SPLIT-DOLLAR PLAN
An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds. Typically, the compensation is reimbursed for its payments at the death of the uninsured.

SPLIT GIFT
Each spouse is entitled to give any individual $15,000 (in 2020) in a calendar year without tax consequences. If a married couple tries to give more than $30,000 (in 2020) to an individual, they must file a gift tax form declaring that the gift is split between them.

SPOUSE
A term for a married person, either a husband or wife.

SPRINGING POWER
A power to act on the occurrence of some certain criteria, such as an illness or incompetency. The power is said to spring into existence upon the occurrence of the event. The agent’s power to act for the principal under a durable power of attorney is usually a springing power.

T

TAX CREDIT
Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.

TAXABLE ESTATE
The portion of an estate that is subject to federal estate taxes or state death taxes. Technically, all of an estate is subject to federal estate taxes, but because of the unified credit, only estates with a value over the exemption equivalent amount actually have to pay any estate taxes.

TAXABLE INCOME
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.

TENANCY IN COMMON
A form of co-ownership. Upon the death of a co-owner, his or her interest passes to his or her chosen beneficiaries or his/her Estate and not to the surviving co-tenants.

TERM LIFE INSURANCE
Type of life insurance that provides temporary protection for a specified number of years.

TESTAMENTARY TRUST
A trust, set up in a will, which does not become effective until the death of the testator.

TESTATE
An individual who has executed a valid will and dies is said to be testate.

TESTATOR
A male individual who executes a will. This term is becoming obsolete.

TESTATRIX

A female individual who execute a will. This term is becoming obsolete.

TRUST
A legal document by which one person, called the trustmaker, trustor, donor, grantor or settlor, places property in the title of the trust for the benefit of himself or another. Normally involves trustor, trustee, who is charged with managing the trust, and beneficiary, in whose behalf the trust is established.

TRUSTEE
A person or corporation appointed by a grantor to take control of trust property and administer it for the benefit of a beneficiary named by the grantor in the trust instrument. The grantor may also designate himself as the trustee and beneficiary. The trustee has a strict duty of accountability (fiduciary) to the beneficiary.

TRUSTMAKER
The person who creates a trust (also known as a grantor, settlor or trustor).

TRUSTOR
A person who establishes a trust. The term trustor is used interchangeably with trustmaker, settlor, grantor, or donor.

U

UNIFIED CREDIT
A credit allowed against both the federal estate and gift taxes. To the extent the credit is not used against an individual’s lifetime gift tax liabilities, it is available to offset estate tax obligations. The credit in 2020 is $11,580,000. The Unified Credit is also referred to as the Applicable Exemption Amount. This amount is indexed, but may decrease significantly if current law sunsets (expires).

UNIFORM GIFTS (Transfers) to MINORS ACT (UGMA or UTMA)
A method to hold property for the benefit of a minor, which is similar to a trust but the rules are governed by state law.

UNIVERSAL LIFE INSURANCE
A type of life insurance that combines a death benefit with a savings element that accumulates tax deferred at current interest rates, subject to change, but with a guaranteed minimum. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy. Universal life is also referred to as “flexible premium” life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy’s cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

V

VARIABLE UNIVERSAL LIFE INSURANCE
A type of life insurance that combines a death benefit with an investment element that accumulates tax deferred. The account value can be allocated into a variety of investment sub-accounts. The investment return and principal value of the variable sub-accounts will fluctuate; thus, the policy’s account value, and possibly the death benefit, will be determined by the performance of the chosen sub-accounts and is not guaranteed. Withdrawals may be subject to surrender charges and are taxable if the account owner withdraws more than his or her basis in the policy. Policy loans or withdrawals will reduce the policy’s cash value and death benefit and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy. Any guarantees are contingent on the claims-paying ability of the issuing company. Variable universal life is sold by prospectus. Please consider the investment objectives, risks, charges, expenses, and your need for death-benefit coverage carefully before investing. The prospectuses, which contains this and other information about the variable universal life policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

W

WARD
Persons for whom guardians are appointed, usually minors or incompetent persons.

WILL (LAST WILL & TESTAMENT)
An instrument (testament) executed by a testator which sets out the testator’s instructions for winding up his/her affairs after death. The will has no effect until the testator dies. It is common for a Testator to nominate Guardians for their minor children in a will.

WHOLE LIFE INSURANCE
A type of life insurance that offers a death benefit and also accumulates cash value tax deferred at fixed interest rates. Whole life insurance policies generally have a fixed annual premium that does not rise over the duration of the policy. Whole life insurance is also referred to as “ordinary” or “straight” life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy’s cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than you basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of the life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

 

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