Estate Planning

A-B Trust: A trust that includes a tax-planning provision that lets you provide for your surviving spouse and keep control over who will receive your assets after your spouse dies. It also lets both spouses use their federal estate tax exemptions.

A Trust: The surviving spouse’s portion of an A-B trust. Also called marital trust or survivor’s trust.

B Trust: The deceased spouse’s portion of an A-B trust. Also called credit shelter or bypass trust.

By-Pass Trust: Another name for the “B” part of an A-B living trust because the assets in this trust bypass federal estate taxes.

Certificate of Trust: A shortened version of a trust that verifies the trust’s existence, explains the powers given to the trustee, and identifies the successor trustee(s). Does not reveal any information about the trust assets, beneficiaries, or their inheritances.

Codicil: A written change or amendment to a Will.

Co-Trustees: Two or more individuals who have been named to act together in managing a trust’s assets. A corporate trustee can also be a co-trustee.

Common Pot Trust: One trust established for two or more individuals.

Credit Shelter Trust: Another name for the B Trust in an A-B living trust because this trust “shelters” or preserves the federal estate tax “credit” of the deceased spouse.

Disclaim: To refuse to accept a gift or inheritance so it can go to the recipient who is next in line.

Estate: Assets and debts left by an individual at death.

Estate Taxes: Federal or state taxes on the value of assets left at death.

Executor: Person or institution named in a will to carry out its instructions. Female is executrix. Also called a personal representative.

Fiduciary: Person having the legal duty to act primarily for another’s benefit. Implies great confidence and trust, and a high degree of good faith. Usually associated with a trustee.

Funding: The process of transferring assets to your living trust.

Generation Skipping Transfer Tax (GSTT): A tax on assets that “skips” a generation and is left directly to grandchildren and younger generations.

Gift: A transfer from one individual to another individual (other than a spouse) without fair compensation.

Gift Tax: A federal tax on gifts made while you are living.

Grantor: The person who sets up or creates the trust. Also called settlor, trustor, donor or trustmaker.

Gross Estate: The value of an estate before debts are paid.

Holographic Will: A handwritten will.

Irrevocable Trust: A trust that cannot be changed (revoked) or cancelled once it is set up. Opposite of revocable trust.

Intestacy: Intestacy occurs when a person dies without a valid will.

Marital Deduction: A deduction on the federal estate tax return that lets the first spouse to die leave an unlimited amount of assets to the surviving spouse free of estate taxes.

Medicaid: A federally-funded health care program for the poor and minor children.

Medicare: A federally-funded health care program, primarily for Americans over age 65 who are covered by Social Security or Railroad Retirement benefits.

Minor: A person who is under the legal age for an adult, which varies by state (usually age 18 or 21).

Per Capita: A way of distributing your estate so that your surviving descendants will share equally, regardless of their generation.

Per Stirpes: A way of distributing your estate so that your surviving descendants will receive only what their immediate ancestor would have received if he/she had been living at your death.

Personal Representative: Modern name for an executor or executrix.

Pour Over Will: A short will often used with a living trust. It states that any assets left out of your living trust will become part of (pour over into) your living trust upon your death.

Power of Attorney: A legal document giving someone legal authority to sign your name on your behalf in your absence. Ends at incapacity or death (if a durable power of attorney).

Probate: The legal process of validating a will, paying debts, and distributing assets after death.

Qualified Terminable Interest Property (QTIP): Property in a trust that delays estate taxes until your surviving spouse dies and requires income will be paid to your spouse during his/her lifetime. You can also keep control over who will receive these assets after your spouse dies.

Qualifying Subchapter S Trust (QSST): Trust that meets certain IRS qualifications and is allowed to own Subchapter S stock.

Quitclaim Deed: Document that allows you to transfer title to real estate. The person transferring the title makes no guarantees, but transfers all his/her interest in the property.

Revocable Trust: A trust in which the person setting it up retains the power to change (revoke) or cancel the trust during his/her lifetime. Opposite of irrevocable trust.

Spendthrift Clause: Language in a trust that protects trust assets from a beneficiary’s creditors.

Stepped-up Basis: Assets are given a new basis when transferred by inheritance (through a will or trust) and are re-valued as of the date of the owner’s death.

Tenants-in-Common: A form of joint ownership in which two or more persons own the same property. At the death of a tenant-in-common, his/her share transfers to his/her heirs.

Tenants-by-the Entirety: A form of joint ownership in some states between husband and wife. When one spouse dies, his/her share of the asset automatically transfers to the surviving spouse.

Transfer Tax: Tax on assets when they are transferred to another. The estate tax, gift tax and generation skipping transfer tax are all transfer taxes.

Trust: An entity that holds assets for the benefit of certain other persons or entities.

Trustee: Person or institution who manages and distributes another’s assets according to the instructions in the trust document.

Warranty Deed: Document that allows you to transfer title to real estate. The transferor guarantees that the title being transferred is clear (free of any encumbrances). If the title is defective, the person making the transfer is liable. (Contrast to quitclaim deed.)

Will: A written document with instructions for disposing of assets after death. A will can only be enforced through the probate court.