Estate Planning represents the generation of a life plan to address various issues regarding taxation both during our life and at our death. The focus is on “Asset Preservation” resulting in the elimination or reduction of Federal and New Jersey Estate Taxation. Below, we’ve provided some common terms in alphabetical order for your reference.
Person named by the court to represent the estate when there is no will or the will did not name an executor; also called a “personal representative.”
An individual designated in a power of attorney to act as the agent of the person who executed the document.
probate proceedings in another state. This is usually necessary when the deceased person owned real estate in a state other than his or her home state.
A-B Trusts (the two “sub-trusts” are created when a person dies):
the “A” Trust – also referred to as the “Marital Trust”- will be maintained for the benefit of the surviving spouse – and the “B” Trust – also referred to as the “By-Pass Trust”, “Credit Shelter Trust” or “Family Trust” – will contain assets of a value equal to the deceased spouse’s remaining estate tax exclusion amount and will also be held for the benefit of the surviving spouse during his or her lifetime. Upon the death of the surviving spouse, the B-Trust will pass to the children (or other beneficiaries) without any additional estate tax, irrespective of the value of the B-Trust at that point.
Each individual can give away up to $14,000 per recipient in 2015 without gift taxes. Not all gifts qualify for the annual exclusion; only outright gifts or gifts to certain types of trusts qualify.
Things of value owned by a person, family, or business everything of value that’s owned property.
Applicable Exclusion Amount:
The amount of property owned by a decedent effectively exempt from the federal estate and gift tax.
An individual or entity which is, or will be a recipient of benefits from a trust, gift or bequest. A generic term that usually refers to a person or entity that is entitled to receive something, for example, a beneficiary of an estate or trust, or a beneficiary of life insurance or retirement benefits.
A trust which is set up to bypass the surviving spouse’s estate, thereby allowing full use of the applicable exclusion amount for both spouses.
Back-up Trustee (also called the Successor Trustee):
The person or institution named in the trust agreement who will assume control of the trust if the original trustee dies, resigns, or becomes unable or unwilling to act.
A written change or amendment to a will. A codicil must be executed with the same formality as an original will.
Charitable remainder trust:
A trust under which a charitable beneficiary receives the remainder of the trust after payment of amounts over time to a non-charitable beneficiary. Often used to facilitate diversification of single low-basis stock holdings, and to maximize charitable gifts and deductions, while providing income payments to the grantor.
Charitable Remainder Trust:
A trust in which individuals are named as beneficiaries to receive income for a period of time (as the lifetimes of the beneficiaries) after which the principal passes to charity Note: Charitable remainder trusts qualify for tax exemptions under section 664 of the Internal Revenue Code.
Charitable remainder annuity trust (“CRAT”):
A trust under which the non-charitable beneficiary has the right to receive an annuity amount each year during a stated term or the beneficiary’s lifetime. The annuity amount is calculated based upon the initial value of the trust assets at the creation of the trust. After the stated term or the beneficiary’s lifetime, the remainder of the trust is distributed to the charitable beneficiary.
Charitable Remainder Annuity Trust:
A charitable remainder trust in which the named beneficiaries receive a fixed payment of not less than five percent of the fair market value of the original principal over the course of a specified period after which the remaining principal passes to charity.
Credit Shelter Trust:
Synonym for “B-Trust”, “By-Pass Trust” and “Family Trust”. (See above.)
A written notification to the beneficiaries that contributions of money — typically to an irrevocable life insurance trust — have been received on their behalf. The beneficiaries then have a period of time to withdraw the funds. If the beneficiaries do not withdraw the money, they are regarded as having received a gift. The funds can then be used to pay the premium on insurance on the grantor’s life. Use of a Crummey Letter can avoid certain potential tax problems arising from the gift of a future interest.
Corpus of a trust:
Term used to designate the body of assets (property) placed in a trust. The trust holds title to all property included in the corpus.
The person who has died.
A refusal by an individual, usually in the form of a written document, to accept some or all of his or her legal rights to property. A disclaimer qualified under the Internal Revenue Code as a non-taxable transfer must be accomplished within 9 months after the date of the transfer..
Durable Power of Attorney:
A legal instrument whereby one appoints and empowers another person as agent to deal with one’s property and personal affairs. It remains effective even after the maker becomes incapacitated
when used as a noun, it refers to an inheritance of real or personal property under a will. When used as a verb, it means to dispose of real or personal property by will.
A person’s permanent and principal home.
A person who makes a gift. This term is also used to refer to a person who establishes a living trust.
The recipient of a gift
Durable Power of Attorney for Property:
A written document in which an individual designates another person to make his or her property and property-related decisions in the event that the individual becomes incapacitated and is unable to do so.
Durable Power of Attorney for Health Care:
A written document in which an individual designates another person to make health care and health-related decisions in the event that the individual becomes incapacitated.
This word has a number of meanings depending on the context in which it is used. For federal estate tax purposes, it refers to all of a deceased person’s assets that are included in that person’s estate for tax purposes (usually everything). It is also used to refer to those items of property that are subject to administration in the probate court. For example, life insurance owned by the decedent and payable to a named beneficiary such as a surviving spouse is not part of the deceased person’s estate that is subject to administration in the probate court, but it is included in the deceased person’s estate for federal estate tax purposes. The total collection of a decedent’s assets whether or not they pass through probate.
Tax imposed by U.S. government and most states on the transfer of property from a decedent to his or her heirs or beneficiaries. The estate tax is levied on and measured by the size of the decedent’s estate, rather than on the amount received by any particular beneficiary.
A process by which a person designs a strategy and prepares documents to conserve, protect, and distribute estate assets before and after death for the benefit of loved ones, taking into consideration the effect of state and federal tax and administrative laws and regulations.
Executor or Executrix:
A person named in the decedent’s will to serve as personal representative in probating the decedent’s estate. The designated person may decline to serve as personal representative.
The new term -“applicable exclusion amount”- used by the Taxpayer’s Relief Act of 1997 to identify the amount of property owned by a decedent effectively exempt from the federal estate and gift tax.($5,430,000 in 2015.) See “Unified Credit”.
Old term for Applicable Exclusion amount (See above).
A Trust established to benefit one’s spouse, children and/or other family members. Often used in reference to the By-Pass Trust discussed above.
comes from a Latin word meaning trust and confidence. This is a generic term used to refer to a person (or entity) that serves in a representative capacity. Personal representatives, trustees, guardians, conservators, and agents under powers of attorney are all fiduciaries. A fiduciary stands in a position of confidence and trust with respect to each heir, devisee, and/or beneficiary.
a proceeding before a probate judge to determine whether a decedent left a valid will.
A voluntary transfer of property for which nothing of value is received in return. If Internal Revenue Service is to recognize a transfer as a gift, the donor(s) must unconditionally transfer all title and control of the property to the recipient(s) at the time the gift is given.
In a trust context, this refers to a person that established a living trust. It is also used to refer to one who is transferring real estate in a deed.
An individual with the legal authority to care for another, usually a minor child.
An individual(s) or institution(s) who transfers real or personal property in trust to a trustee or trustees under directions to the trustee, usually contained in a written trust instrument or agreement, to hold, manage, invest, account for and distribute the property to the beneficiary or beneficiaries on the terms set forth in the trust instrument..
A transfer tax imposed at a rate equal to 40% in 2015 on transfers made by a donor during their lifetime. Each decedent has a federal unified credit exemption ($5,430,000 in 2015) from the federal gift tax, and, if not used during lifetime, the exemption will exempt transfers at death from the federal estate tax. Also, each donor can make an unlimited number of annual exclusion gifts each year without incurring gift tax.
One who inherits property from the estate of a deceased person who died without a will.
A will entirely hand-written by the testator. The date and all words in the will including the signature must be in the handwriting of the testator. The signature of the testator can be, but need not be, witnessed.
Any death tax that is 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 ).
When one dies without a valid will, such that the decedent’s estate is distributed in accordance with state law. (See “Heir” above.)
Intangible Personal Property:
property one cannot physically touch. This type of property may have some paper associated with it. This type of property usually includes such items as stock, bonds, mutual funds, bank accounts, and cash.
Inter vivos trust:
A trust created during the grantor’s lifetime, usually by means of a trust instrument or agreement.
Intentionally defective grantor trust:
An irrevocable inter vivos trust created by a grantor for the benefit of beneficiaries other than the grantor that attributes all income tax incidents to the grantor. Typically used where the grantor desires to irrevocably gift the property to the beneficiaries and exclude the property from the grantor’s taxable estate for estate tax purposes, but intends that the transfer be ignored for income tax purposes. Often used in conjunction with a sale of discounted assets by the grantor to the trust, to avoid capital gain on the sale of the assets.
A list of the assets of the decedent or disabled person that is prepared by an attorney and signed by the fiduciary (personal representative or conservator/guardian). This is required to be filed in Probate court.
A person’s inability to act on his or her own behalf, i.e. the “sound mind” requirement for drafting a valid will. A court makes a finding of incapacity.
Inter vivos trust:
A trust that is created during a person’s lifetime, which holds property for the benefit of another.
A trust that cannot be revoked, modified or amended once it has been established. Irrevocable trusts are often used in tax planning to get property “out” of a person’s estate so that it will not be subject to estate tax upon his or her death.
A type of ownership of real or personal property by two or more persons in which each owns an undivided interest in the whole and attached to which is the right of survivorship, by which title to the entire tenancy on the death of any joint tenant automatically passes to the surviving tenant(s) by operation of law.
a trust that one establishes during one’s lifetime which is not part of one’s will, but is usually established by a separate written trust agreement. The same as “inter vivos trust.” This type of document is also sometimes referred to as a revocable living trust.
Letters of Administration:
Document issued by the probate court giving the administrator authority to administer the estate.
Document issued by the probate court giving the executor authority to administer the estate under the provisions of the decedent’s will.
Amounts owed by a person, family, or business everything owed to others.
Life insurance trust:
This is an irrevocable trust which is generally established for the purpose of excluding life insurance proceeds from the estate of the insured and the spouse of the insured for death tax purposes.
A binding legal document that sets forth a person’s wishes regarding the use of life-sustaining treatment in the event that he or she becomes terminally ill or permanently unconscious.
An unlimited deduction against the estate tax and gift tax for transfers made outright or in qualifying trusts to the spouse of the transferor
Trust established to hold the surviving spouse’s share of property upon the death of first spouse to die (see “A-B Trust” above). This trust qualifies for the marital deduction (See above).
The person appointed by a decedent in his or her will, or by the court if the decedent dies intestate (i.e. without a will), to carry out the administration of the decedent’s estate. Also known as Executor or Executrix.
Probate is a court process that validates a person’s will and oversees the distribution of assets subject to the terms of the will. If a person dies without a valid will (intestate), the probate court will apply applicable state law to determine the estate’s beneficiaries. The estate executor and attorney are eligible to receive fees for administering the estate through the probate process. Probate fees, and the time associated with the court process, vary by state and by the size of the estate. The probate court is a public process and estates that pass through the court will be a matter of public record.
The assets of the decedent as of the date of death which are titled only in the decedent’s name, or which are payable to the decedent’s “estate” or personal representative. Property held in joint tenancy with rights of survivorship are not included in the decedent’s probate estate. In addition, the proceeds of life insurance, annuities, IRAs or qualified retirement benefits will not be included in the decedent’s estate unless the beneficiary designation specifically designates the decedent’s estate.
A Will used in conjunction with a Revocable Living Trust to dispose of any property owned by the decedent at time of death which was not transferred to the Trust. The Trust instrument contains detailed instructions relating to the distribution of the property.
A legal instrument whereby one appoints and empowers another person as agent to deal with one’s property and affairs. Also see Durable Power of Attorney above.
Power of Appointment:
A legal right given to a person in order to allow him or her to decide how to distribute a deceased person’s property. A “general” power of appointment places no restrictions on the named person, while a “limited” or “special” power of appointment places restrictions on who may receive distributions.
Qualified terminable interest property (“QTIP”) trust:
A terminable interest that will qualify for the marital deduction if an appropriate election is made by the donor or executor. This type of vehicle is frequently used to avoid any transfer tax upon the death of the first spouse. It provides the surviving spouse with all income from the property (and access to the principal, under certain conditions) during his or her life, but it enables the deceased spouse to retain control over the ultimate disposition of the property.
Qualified Domestic Trust (QDOT):
A marital trust used for the benefit of a non-U.S. citizen spouse containing special provisions specified by the Internal Revenue Code such that transfers to the QDOT qualify for the estate tax marital deduction.
Qualified Personal Residence Trust (QPRT):
An Irrevocable Trust established to hold title to one’s residence. The owner transfers ownership of the house to the trust, retaining the right to reside in the home for a period of years.
An inter vivos trust that is subject to amendment or revocation by the grantor or settlor. Primarily used to avoid probate upon the grantor’s death, guardianship and conservatorship actions during the grantor’s lifetime, and to maintain the grantor’s privacy both during the grantor’s lifetime and upon the grantor’s death. Usually contains the same provisions as a will for the disposition of the grantor’s estate upon the grantor’s death.
Land and anything permanently attached to it.
a person who established a living trust.
Special Needs Trust/Supplemental Needs Trust:
A trust established for a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs.
The testator possesses sound mind for the purposes of making a will if he or she: (1) understands the nature of the act of making a will or codicil thereto, (2) knows the extent and character of the property subject to the will, (3) knows and understands the proposed disposition of that property, and (4) knows the natural objects of his or her bounty (i.e. his or her heirs). Whether the testator was of sound mind is tested (determined) by the state of the testator’s mind at the time the will or codicil is executed (written and signed).
A term used to describe transfers of asset ownership through inheritance, gifting, preferential sale, or other means that fulfill the wishes of the person(s) with present ownership of the assets.
Successor Trustee/Substitute Trustee:
The trustee who “takes over” upon the death, disability or resignation of the original trustee or a prior trustee.
Tangible Personal Property:
property that you can touch, such as cars, dishes, jewelry, tools, guns, sporting equipment, etc.
A written document providing that property be held by one (the “trustee”) for the benefit of another (the “beneficiary”). A trust may be created during the grantor’s lifetime or after his or her death.
A trust established after the death of the grantor under the provisions of the grantor’s will.
A form of joint ownership in which two or more persons own interest in the same property. At the death of a tenant-in-common, ownership transfers to that person’s designated beneficiaries or heirs, not to the other joint owner(s).
an adult individual or financial institution that is designated to be responsible for the administration of a trust. There may be more than one trustee (co-trustees), and an individual and a financial institution may serve as co-trustees.
A form of joint ownership of property available only to married couples. Very similar to Joint Tenancy in that title to the property automatically vests in the surviving spouse tenant-by-the-entirety. Tenancy-by-the-Entirety ownership provides some creditor protection in some states.
a person who makes a will.
The individual who establishes a trust; also can be referred to as the “settlor” or the “grantor.”
Refers to dying with a will.
The lifetime tax credit available to every U.S. resident (not limited to American citizens) as an offset against federal gift and/or estate taxes. While technically a credit, for discussion purposes estate planners usually talk in terms of the equivalent exemption (the “applicable exclusion amount” in the latest Code terminology).
A written document by which a person who is over the age of eighteen (18) may direct, subject to certain exceptions, the disposition of their personal and real property after death. With a will, the decedent can name a personal representative and control the disposition of his or her probate estate subject to certain exceptions. If a person does not execute a will, each state has “default” rules, called “intestacy laws,” which specify who receives the decedent’s