Glossary of Terms Page 8

Tax-Deferred
Plan
A retirement savings plan
(like an IRA, 401(k), pension, profit sharing, or
Keogh) that qualifies for special income tax
treatment. The contributions made to the plan and
subsequent appreciation of the assets are not taxed
until they are withdrawn at a later time —
ideally, at retirement, when your income and tax
rate are lower.
Taxable
Gift
Generally, a gift of more than $15,000 in one year to someone other than your spouse. The value of the taxable gift is applied to your federal gift tax exemption. After you have used up your exemption, additional gifts will be taxed, usually at the highest estate tax rate in effect. In 2020, the gift tax exemption is the same as the federal estate tax exemption (currently $11,580,000) and the top tax rate is 40%.

 

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Glossary of Terms Page 7

 

Separate
Property
Generally, all assets you
acquire prior to marriage and assets acquired by
gift or inheritance during marriage.
Separate
Trust
A trust established by one
person. A married couple has separate trusts if
each spouse has his/her own trust with its own
assets. In contrast, see “Common Trust.”
Settle an
Estate
The process of handling the
final affairs (valuation of assets, payment of
debts and taxes, distribution of assets to
Beneficiaries) after someone dies.
Settlor See “Grantor.”
Special
Gifts
A separate listing of special
assets that will go to specific individuals or
organizations after your incapacity or death. Also
called special bequests.
Special Needs
Trust
Allows you to provide for a
disabled loved one without interfering with
government benefits.
Spendthrift
Clause
Protects assets in a trust
from a beneficiary’s creditors.
Spouse Husband or wife, or married same-sex couples.
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. If an asset has appreciated
above its basis (what the owner paid for it), the
new basis is called a stepped-up basis. A
stepped-up basis can save a considerable amount in
capital gains tax when an asset is later sold by
the new owner. Also see “Basis.”
Subchapter S Corporation
Stock
Stock in a corporation which
has chosen to be subject to the rules of subchapter
S of the Internal Revenue Code.
Surviving
Spouse
The spouse who is living
after one spouse has died.
Survivor’s
Trust
See “A Trust.”
Successor
Trustee
Person or institution named
in the trust document who will take over should the
first trustee die, resign, or otherwise become
unable to act.
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Glossary of Terms Page 6

Payable-on-Death
Account
See “Totten
Trust.”
Per Capita A way of distributing your
estate so that your surviving descendents will
share equally, regardless of their
generation.
Per Stirpes A way of distributing your
estate so that your surviving descendents will
receive only what their immediate ancestor would
have received if he/she had been living at your
death.
Personal
Property
Movable property. Includes
furniture, automobiles, equipment, cash and stocks.
Opposite of real property that is permanent (like
land).
Personal
Representative
Another name for an executor
or administrator.
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 (unless
it is a durable power of attorney) or
death.
Probate The legal process of
validating a will, paying debts, and distributing
assets after death.
Probate
Estate
The assets that go through
probate after you die. Usually these include assets
you own in your name and those paid to your estate.
Usually does not include assets owned jointly,
payable-on-death accounts, insurance and other
assets with beneficiary designations. Assets in a
trust also do not go through probate.
Probate
Fees
Legal, executor, and
appraisal fees and court costs when an estate goes
through probate. Probate fees are paid from assets
in the estate before the assets are fully
distributed to the heirs.
Qualified Domestic Trust
(QDOT)
Allows a non-citizen spouse
to qualify for the marital deduction.
Qualified Terminable
Interest Property (QTIP)
A trust that delays estate
taxes until your surviving spouse dies so more
income will be available to provide for 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. With a quitclaim
deed, the person transferring the title makes no
guarantees, but transfers all his/her interest in
the property.
Real
Property
Land and property that is
permanently attached to land (like a building or a
house).
Recorded
Deed
A deed that has been filed
with the county land records. This creates a public
record of all changes in ownership of property in
the state.
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.
Required Beginning Date
(RBD)
The date you must begin
taking required minimum distributions from your
tax-deferred plans. Usually, it is April 1 of the
calendar year following the calendar year in which
you turn age 70 1/2. If your money is in a
company-sponsored plan, you may be able to delay
your RBD beyond this date if you continue working
(providing you are not a 5% or greater owner of the
company).
Required Minimum
Distribution (RMD)
The amount you are required
to withdraw each year from your tax-deferred plan
after you reach your Required Beginning Date. This
amount is determined by dividing the year-end value
of your tax-deferred account by a life expectancy
divisor found on a chart provided by the
IRS.
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Glossary of Terms Page 5

 

Payable-on-Death
Account
See “Totten
Trust.”
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
Property
Movable property. Includes
furniture, automobiles, equipment, cash and stocks.
Opposite of real property that is permanent (like
land).
Personal
Representative
Another name for an executor
or administrator.
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 (unless
it is a durable power of attorney) or
death.
Probate The legal process of
validating a will, paying debts, and distributing
assets after death.
Probate
Estate
The assets that go through
probate after you die. Usually these include assets
you own in your name and those paid to your estate.
Usually does not include assets owned jointly,
payable-on-death accounts, insurance and other
assets with beneficiary designations. Assets in a
trust also do not go through probate.
Probate
Fees
Legal, executor, and
appraisal fees and court costs when an estate goes
through probate. Probate fees are paid from assets
in the estate before the assets are fully
distributed to the heirs.
Qualified Domestic Trust
(QDOT)
Allows a non-citizen spouse
to qualify for the marital deduction.
Qualified Terminable
Interest Property (QTIP)
A trust that delays estate
taxes until your surviving spouse dies so more
income will be available to provide for 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. With a quitclaim
deed, the person transferring the title makes no
guarantees, but transfers all his/her interest in
the property.
Real
Property
Land and property that is
permanently attached to land (like a building or a
house).
Recorded
Deed
A deed that has been filed
with the county land records. This creates a public
record of all changes in ownership of property in
the state.
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.
Required Beginning Date
(RBD)
The date you must begin
taking required minimum distributions from your
tax-deferred plans. Usually, it is April 1 of the
calendar year following the calendar year in which
you turn age 70 1/2. If your money is in a
company-sponsored plan, you may be able to delay
your RBD beyond this date if you continue working
(providing you are not a 5% or greater owner of the
company).
Required Minimum
Distribution (RMD)
The amount you are required
to withdraw each year from your tax-deferred plan
after you reach your Required Beginning Date. This
amount is determined by dividing the year-end value
of your tax-deferred account by a life expectancy
divisor found on a chart provided by the
IRS.
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Glossary of Terms Page 4

Health Care
Proxy
See “Durable Power of
Attorney for Health Care.”
Heir One who is entitled by law to
receive part of your estate.
Holographic
Will
A handwritten
will.
Homestead
Exemption
Portion of your residence
(dwelling and surrounding land) that cannot be sold
to satisfy a creditor’s claim while you are
living.
Incapacitated/
Incompetent
Unable to manage one’s
own affairs, either temporarily or permanently.
Lack of legal power.
Independent
Administration
A form of probate available
in many states. Intended to simplify the probate
process by requiring fewer court appearances and
less court supervision.
Inheritance The assets received from
someone who has died.
Inter vivos Latin term that means
“between the living.” An inter vivos trust is
created while you are living instead of after you
die. A revocable living trust is an inter vivos
trust.
Irrevocable
Trust
A trust that cannot be
changed (revoked) or cancelled once it is set up.
Opposite of revocable trust.
Intestate Without a will.
Joint
Ownership
A form of ownership in which
two or more persons own the same asset together.
Types of joint ownership include joint tenants with
right of survivorship, tenants in common, and
tenants by the entirety.
Joint Tenants with Right
of Survivorship
A form of joint ownership in
which the deceased owner’s share automatically
and immediately transfers to the surviving joint
tenant(s).
Land Trust Often used for privacy. Title is transferred to a corporate trustee or corporation, but you keep control over how the property is managed. Because the title is in the name of the corporate trustee or corporation, no one knows the property belongs to you. In all financial transactions and dealings, your personal name never comes up. Also called a title holding trust.
Liquid
Assets
Cash and other assets (like
stocks) that can easily be converted into
cash.
“Living
Probate”
The court-supervised process
of managing the assets of one who is
incapacitated.
Living
Trust
A written legal document that
creates an entity to which you transfer ownership
of your assets. Contains your instructions for
managing your assets during your lifetime and for
their distribution upon your incapacity or death.
Avoids probate at death and court control of assets
at incapacity. Also called a revocable inter vivos
trust. A trust created during one’s
lifetime.
Living
Will
A written document that
states you do not wish to be kept alive by
artificial means when the illness or injury is
terminal.
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. However, if
no other tax planning is used, and the surviving
spouse’s estate is more than the amount of the
federal estate tax exemption in effect at the time
of his/her death, estate taxes will be due at that
time.
Marital
Trust
See “A Trust.”
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 One who is under the legal
age for an adult, which varies by state (usually
age 18 or 21).
Net Estate The value of an estate after
all debts have been paid. (Federal estate taxes are
based on the net value of an estate.)
Net Value The current market value of
an asset less any loan or debt.
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Glossary of Terms Page 3

Deceased One who has died.
Deed A document that lets you transfer title of your real estate to another person(s). Also see warranty deed and quitclaim deed.
Disclaim To refuse to accept a gift or inheritance so it can go to the recipient who is next in line.
Discretion The full or partial power to make a decision or judgment.
Disinherit To prevent someone from inheriting from you.
Distribution Payment in cash or asset(s) to one who is entitled to receive it.
Durable Power of Attorney for Asset Management A legal document that gives another person full or limited legal authority to sign your name on your behalf in your absence. Valid through incapacity. Ends at death.
Durable Power of Attorney for Health Care A legal document that lets you give someone else the authority to make health care decisions for you in the event you are unable to make them for yourself. Also called a health care proxy or medical power of attorney.
Equity The current market value of an asset less any loan or liability.
Estate Assets and debts left by an individual at death.
Estate Taxes Federal or state taxes on the value of assets left at death. Also called inheritance taxes or death taxes.
Executor Person or institution named in a will to carry out its instructions. Female is executrix. Also called a personal representative.
Federal Estate Tax Exemption Amount of an individual’s estate that is exempt from federal estate taxes. As of 2014, the exemption was set at $10,000,000 (adjusted annually for inflation). The exemption amount is $11,400,000 for 2019.
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.
Gain The difference between what you receive for an asset when it is sold and what you paid for it. Used to determine the amount of capital gains tax due.
Generation Skipping Transfer Tax (GSTT) A steep tax on assets that “skip” a generation and are left directly to grandchildren and younger generations. Under current law, the GST exemption is the same as the federal estate tax exemption (double for a married couple) with a tax rate of 35%.
Gift A transfer from one individual to another without fair compensation.
Gift Tax A federal tax on gifts made while you are living. Currently $15,000 per person per year is exempt from gift tax. Also see “Annual Exclusion.”
Grantor The person who sets up or creates the trust. The person whose trust it is. Also called creator, settlor, trustor, donor or trustmaker.
Gross Estate The value of an estate before debts are paid.
Guardianship See “Conservatorship.”
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Glossary of Terms Page 2

C Trust See “QTIP.”
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.
Children’s Trust A trust included in your living trust. If, when you die, a beneficiary is not of legal age, the child’s inheritance will go into this trust. The inheritance will be managed by the trustee you have named until the child reaches the age at which you want him/her to inherit.
Codicil A written change or amendment to a Will.
Co-Grantors Two or more persons who establish one living trust together.
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 Trust One living trust established by two or more individuals (usually a married couple).
Community Property Assets a husband and wife acquire by joint effort during marriage if they live in one of the eight community property states. (Wisconsin also has a similar law, but does not use the term “community property.”) Each spouse owns half of the assets in the event of divorce or death.
Conservator One who is legally responsible for the care and well-being of another person. If appointed by a court, the conservator is under the court’s supervision. May also be called a guardian. (Duties and titles can vary by state. For example, in Missouri, there is a guardian of the person and a conservator of the estate.)
Conservatorship A court-controlled program for persons who are unable to manage their own affairs due to mental or physical incapacity. May also be called a guardianship.
Contest To dispute or challenge the terms of a will or trust.
Corporate Trustee An institution, generally a bank or trust company, that specializes in managing trusts.
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.
Creditor Person or institution to whom money is owed.
Custodian Person named to manage assets left to a minor under the Uniform Transfer to Minors Act. In most states, the minor receives the assets at legal age.
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Glossary of Terms Page 1

A Trust The surviving spouse’s portion of an A-B trust. Also called marital trust or survivor’s trust.
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. This can save a substantial amount in estate taxes and leave more money for your beneficiaries.
Administration The court-supervised distribution of an estate during probate. Also used to describe the same process for a trust after the grantor dies.
Administrator Person named by the court to represent a probate estate when there is no will or the will did not name an executor. Female is administratrix. Also called personal representative.
Alternate Beneficiary Person or organization named to receive your assets if the primary beneficiaries named in your Trust die before you do.
Ancillary Administration An additional probate in another state. Typically required when you own real estate in another state that is not titled in the name of your trust.
Annual Exclusion Amount you can give someone each year without having to file a gift tax return or pay a gift tax. Currently $15,000 per recipient ($30,000 if married). The amount of tax-free gifts is tied to inflation and may increase from time to time.
Assets Basically, anything you own, including your home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
Assignment A short document that transfers your interest in assets from your name to another. Often used when transferring assets to a trust.
B Trust The deceased spouse’s portion of an A-B trust. Also called credit shelter or bypass trust.
Basis What you paid for an asset. The value that is used to determine gain or loss for income tax purposes.
Beneficiaries In a living trust, the persons and/or organizations who receive the trust assets (or benefit from the trust assets) after the death of the trust grantor.
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.
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