FAQs

AB Trust – A type of Revocable Living Trust used by married couples. When the first spouse passes away, two separate trusts (Trust A and Trust B) are created. By dividing the couple’s estate into two trusts, each spouse can pass the maximum amount of property allowed to avoid federal estate taxes.

Administrator – When a person dies without a Will or Trust, the court will appoint a person to gather and distribute assets, as well as pay final bills. The title of the person is Administrator. [Similar to an Executor, but the title Executor is only used when the person who died had a valid Will.]

Advance Health Care Directive – A document granting another person (the agent) the right to make health care decisions for someone who has lost legal (mental) capacity, so the person is unable to handle their own affairs.

Annual Exclusion – The dollar value of assets that the IRS allows a person to give to others in a calendar year before the “giver” is required to pay gift tax and/or file a gift tax return. The exclusion amount increases over time.

Annuity – The payment of a specific amounts of money throughout the recipient’s lifetime or for a set amount of time.

Asset Protection – Protecting your property from legal problems and taxes during your life and after death. One way to protect assets is to form a corporation or LLC.

Basis – A tax term, which refers to the original value of an asset when acquired. The basis is used to determine the amount of capital gains taxes due.

Beneficiaries – The people or organizations that benefit from a Trust or Will by receiving gifts (an inheritance) of assets according to the terms of the Trust or Will.

Bequest – An old legal term meaning a gift or property given under the terms of a Will.

Bypass Trust – see Exemption Trust

Charitable Lead Trust (“CLT”) – An irrevocable trust through which a charity receives a set amount of income during a specific timeframe. When that time ends, whatever is left in the trust is distributed to named beneficiaries.

Charitable Remainder Trust (“CRT”) – An irrevocable trust through which individual beneficiaries receive a set amount of income during a specific timeframe. When the time ends, any assets left in the trust are donated to a charity.

Charitable Remainder Unitrust (“CRUT”) – An irrevocable trust through which beneficiaries receive a fixed percentage of a Trust’s principal each year during the term of the trust.

Charitable Remainder Annuity Trust (CRAT) – An irrevocable trust through which beneficiaries receive a fixed dollar amount each year during the term of the trust.

Charitable Trust – An irrevocable trust having a charitable organization as a lifetime beneficiary (Charitable Lead Trust or “CLT”) or a death beneficiary (Charitable Remainder Trust or “CRT”).

Codicil – An amendment to a Will.

Community Property – Some states’ laws require that all assets obtained during a marriage belong 50/50 to the spouses. So, if a married person earns a dollar at work, fifty cents belongs to one spouse and fifty cents

belongs to the other. There are exceptions for gifts and assets inherited during marriage, as those assets are owned by one spouse only. California is a community property state.

Consideration – Something which has value, such as an asset or a promise given in exchange for another promise. All contracts require an offer, acceptance, and consideration to be valid.

Corporation – By law, a corporation is a “person” (no, it’s not a human being) that can enter into contracts, buy and sell real estate, and more. Corporations consist of a group of people who are authorized to act on a day-to-day basis on behalf of the business (officers) and people who have high-level oversight over the business (directors). Corporations have a separate existence from their owners (called shareholders).

Creditor – A person or organization that is owed money.

Creditor’s Claim – The document containing information about a debt. In probate matters, creditors can file a claim with the Probate Court after a person has passed away owing a debt to the creditors.

Decedent – A person who has died.

Death Taxes – State and local taxes levied on the assets of a deceased person. [Similar federal taxes are called Estate Taxes.]

Deed – A written document used to show ownership and/or the transfer of title to real estate.

Director – Someone who serves on a corporation’s Board of Directors and has high-level oversight over the corporation. Directors do not get involved in the day-to-day running of the business because that’s the job of officers. Directors are elected by shareholders, who are the owners of the corporation.

Disclaimer (contracts) – Language in a contract that sets specific parameters around the transaction and usually limits the liability of one or more people who are parties to the contract.

Disclaimer (estate planning) – The refusal of a beneficiary to accept property that someone left for that person in a trust or will.

Durable Power of Attorney – A document through which one person (the principal) gives another person (the agent) the right and authority to handle the principal’s financial affairs if the principal ever loses legal (mental) capacity due to Alzheimer’s, dementia, an accident, or some other way.

Estate – All of a person’s assets owned at the time of death after all final debts have been paid.

Estate Planning – The process by which a person plans for transferring his or her assets at death and prepares for the possibility that the person

Estate Taxes – Taxes imposed on the “privilege” of being able to transfer property at death. Estate tax is most commonly used in reference to the tax imposed by the Federal Government. [Similar state and local taxes are usually called Death Taxes.]

Executor – The person named in a Will who is legally obligated to follow the terms contained in the Will. [When there is no Will, the title of the person is Administrator.]

Fiduciary – A person or organization that manages property for someone else. Fiduciaries have a very high legal duty and responsibility because they have access to assets that do not belong to them. Examples of fiduciaries are conservators, guardians, personal representatives, agents, executors, and trustees.

Generation Skipping Transfer (GST) Tax – A federal tax imposed on large amounts of money given or left to a grandchild or great-grandchild. Its purpose is to keep families from avoiding the estate tax that would be due

if the oldest generation left property to their children, who then left it to their children (the original giver’s grandchildren).

Gift Taxes – Taxes levied by the Federal Government on gifts. Gift taxes and estate taxes have been “merged” into a single tax called the “unified tax.”

Grantor – See Settlor

Grantor Retained Annuity Trust (GRAT) – An irrevocable trust where the grantor of the trust property (e.g., highly-appreciating stock) receives a fixed income stream during a term of years, and the remaining assets are distributed tax-free or at a discount to the beneficiaries.

Grantor Retained Interest Trust (GRIT) – An irrevocable trust where the grantor of the trust property (e.g., a personal residence) receives an income for a fixed period of time.

Gross Estate – The total value of an estate at the date of the decedent’s death. The value is determined before debts and other “deductions” are subtracted from the estate value.

Guardian – A person appointed by a court to protect and care for a minor (someone under age 18) and/or to manage the financial affairs of a minor.

Heir – A person entitled by law to inherit a portion of the estate of a person who has died without a Will.

Holographic Will – A Will that is handwritten and signed by the person making the Will.

IDIT – See Intentionally Defective Irrevocable Trust

ILIT – See Irrevocable Life Insurance Trust

Inheritance Tax – A tax imposed upon the transfer of property from a deceased person’s estate. “Inheritance Tax” is a term which is usually applied to the taxes charged by a state, whereas the taxes imposed by the Federal Government are usually referred to as estate taxes.

Intentionally Defective Irrevocable Trust (IDIT) – An irrevocable trust in which the grantor retains a controlling interest in trust-owned assets. It often offers significant tax advantages.

Intervivos Revocable Trust – A trust created by a living person for the benefit of another person. It’s another name for a living trust or revocable trust. The term intervivos is Latin for “while alive” or “between the living.”

Intestate – Without a will. [The opposite is when someone dies “testate”, which means with a Will.]

Irrevocable Life Insurance Trust (ILIT) – A type of irrevocable trust used to hold life insurance. When a life insurance policy is held in an insurance trust, it is protected from estate taxes when the insured dies, provided the trust is established properly, managed properly, and the insured does not retain any “incidents of ownership.”

Irrevocable Trust – A trust that cannot be changed, canceled, or “revoked” once it is set up. Examples of irrevocable trusts are Special Needs Trusts, Insurance Trusts, GRITs, and Dynasty Trusts. Irrevocable trusts are treated by the IRS very differently than revocable trusts.

Insurance Trust – An irrevocable trust used to hold insurance and pass it on to heirs without any estate taxes on the death benefits of the policy.

Issue – A legal term used in Wills and trusts meaning one’s children, grandchildren, etc., either through birth or adoption.

Letters of Administration – A court document that gives a person authority to act as personal representative (“Administrator”) when someone dies without a Will.

Letters Testamentary – A court document that gives a person authority to act as personal representative (“Executor”) when someone dies with a Will.

Notice of Proposed Action – Formal written notice by a personal representative with full authority (under the Independent Administration of Estates Act) to the interested parties in an estate, of the intent to take certain action (e.g. sell real property) on or after a certain date.

Life Estate – The right to have all of the benefit from a property during one’s lifetime. The person with the right does not own the property, and when he or she dies, the property is not included in his or her estate.

Limited Liability Company (LLC) – A type of business whose owners actively participate in the organization’s management and are protected against personal liability for the organization’s debts and obligations. [Corporations have officers, directors and shareholders. LLCs have managers and members.]

Limited Liability Partnership (LLP) – A type of partnership in which individual partners are protected against personal liability for certain partnership liabilities.

Living Trust – A revocable trust that can be changed or dissolved at any time by the person who set up the trust (called a trustor or grantor.) Living trusts are used to avoid probate, help in situations of legal (mental) incompetency, and set out who will be receiving an inheritance once the grantor has passed away.

LLC – See Limited Liability Company, above.

LLP – See Limited Liability Partnership, above.

Marital Deduction – The unlimited deduction allowed under federal estate tax law for all qualifying property passing from the estate of the deceased spouse to the surviving spouse. The value of the property passing to the surviving spouse under the marital deduction is “deducted” from the deceased spouse’s estate before federal estate taxes are calculated on the estate. Proper planning and use of the deduction allows more property to pass estate tax-free to the family.

Manager – The title of the person or people who is responsible for managing the company and entering into contracts on behalf of a limited liability company (LLC).

Manager Managed LLC – In a manager-managed limited liability company (LLC), the members either hire or appoint a person or people to run the LLC’s daily business.

Member Managed LLC – In a member-managed limited liability company (LLC), the members are responsible for running the day-to-day business operations of the LLC. Member Managed LLCs are more common than Manager Managed LLCs.

Member – The title of an owner of a limited liability company (LLC).

Officers – Someone who works at a corporation and handles the day-to-day running of the business. Officers are elected by the Board of Directors.

Personal Property – Assets other than real estate (called real property in the law.) Examples of personal property include vehicles, furniture, and bank accounts.

Pourover Will – A specialized type of Will that transfers into a trust certain assets that were outside of a trust at a person’s death. The assets are said to “pour over” into the trust.

Power of Appointment – The power given to a person in a Will or Trust to distribute assets that pass through a Will or Trust at the discretion of the person appointed.

Probate – The legal process that takes place in Probate Court to facilitate the transfer of a deceased person’s assets whether that person left a Will or died without a Will.

Qualified Domestic Trust (QDOT) – A type of trust that allows taxpayers who are not U.S. citizens to claim the marital deduction for estate tax purposes.

Reversionary Interest – An interest that a grantor transferred to another person or entity, but which will revert back to the grantor if and when a certain event occurs.

Revocable Trust – A trust that can be amended or dissolved (revoked) by the person or people who set up the trust.

Revocable Living Trust – See Living Trust

Real Property – Real estate. Land and attachments to the land, such as buildings, fences, etc.

Settlor – A person who establishes a trust. [Same as “trustor” and “grantor.”]

Shareholder – The owners of a corporation. If you own shares in a corporation, you are one of the owners!

Succession Planning – The creation of a plan to develop future leaders so they can eventually replace the current leadership. In family-owned businesses, it is a plan to eventually transition management of the business to the next generation.

Successor Trustee – The trustee who takes over when the initial trustee can no longer serve as trustee.

Survivor’s Trust – A revocable trust that contains the surviving spouse’s property interest, over which that spouse has total control. See AB Trust for further explanation.

Taxable Estate – The portion of an estate that is subject to federal or state estate taxes.

Testate – With a will. [If someone dies “intestate”, the person died without a Will.]

Trust – A legal document in which property is held and managed by a trustee for the benefit of another known as a beneficiary. A trust is a relationship in which property is held by one person for the benefit of another.

Trustee – The person or company that manages the trust assets in accordance with the terms of the trust.

Trustor – A person who establishes a trust. [Same as “settlor” and “grantor.”] Yes, there are three legal words that all mean the same thing. Don’t shoot the messenger!

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