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A-B TRUSTS:
The two "sub-trusts" created when a person dies, one of which - the "A" Trust - will be maintained for the benefit of the surviving spouse - and the other of which - the "B" Trust - will contain assets of a value equal to the deceased spouse's remaining estate tax exclusion amount. The B-Trust, sometimes referred to as the "Family Trust," "By-Pass Trust," or the "Credit Shelter Trust", will also typically be held for the benefit of the surviving spouse (and children, potentially) during his or her lifetime, but upon the death of the surviving spouse, will pass to the children (or other beneficiaries) without any additional estate tax, irrespective of the value of the B-Trust at that point.
ADMINISTRATOR:
The person appointed by the court to manage the estate of a person who died intestate (without a will).
ADVANCE MEDICAL DIRECTIVE:
A document which combines the elements of a Health Care Power of Attorney and Living Will.
AGENT:
The modern term for a person appointed under a Power of Attorney to conduct the affairs and deal with the property of another. The agent need not be a lawyer; any competent adult individual may serve. (Also called an Attorney-in-Fact)
ATTORNEY-IN-FACT:
The traditional legal term for an agent: a person appointed under a Power of Attorney to conduct the affairs and deal with the property of another. The attorney-in-fact need not be a lawyer; any competent adult individual may serve.
BENEFICIARY:
The person named in a Will, Trust or financial instrument (i.e. IRA Account, Annuity Contract, Insurance Policy) to receive property/assets from that arrangement.
BEQUEST:
A gift made in a will or trust.
CAPACITY:
The legal competence to effectively perform a given act (e.g. to write a Will or Trust, to enter into a binding contract).
CHARITABLE TRUST:
A Trust created for the benefit of a charity, often created to benefit the maker for a term of years before passing the rest to charity (Charitable Remainder Trust) or, in the reverse, giving a charity income for a term of years then passing the remainder to the maker's heirs (Charitable Lead Trust).
CONVENIENCE TRUST:
A subtrust held for a beneficiary which allows all income to be paid annually and allows principal distributions upon the written request of the beneficiary.
CORPORATION:
A Business Entity which offers owners (called shareholders) limited liability and which must be formally chartered by the state to do business. Corporations typically fall into two categories, which are named after sections of the Internal Revenue Code: S Corporations and C Corporations.
CRUMMEY TRUST:
An irrevocable trust established to qualify contributions for the annual federal gift tax exclusion (currently $13,000) for gifts of a present interest. So-called because the trust contains "Crummey Powers," enabling a beneficiary to withdraw assets contributed to the trust for a limited period of time.
DECEDENT:
Person who has died.
DEVISE:
A gift of real property in a will or trust.
DESIGNATED BENEFICIARY:
An individual beneficiary of a retirement account (IRA, 401(k), 403(b), etc.) who qualifies as a person whose life expectancy may be used, either jointly or singly, for determining minimum annual distributions.
DYNASTY TRUST:
See Multi-Generation Trust.
ESTATE PLANNING:
The process of arranging one's property and affairs so as to ensure their current management and ultimate disposition in the most efficient, effective, economical, and private manner, taking into consideration the effect of state and federal tax and administrative laws and regulations.
ESTATE TAX:
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 federal 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.
EXCLUSION AMOUNT:
The new term -"applicable exclusion amount"- used by the Internal Revenue Code to identify the amount of property owned by a decedent effectively exempt from the federal estate and gift tax. ($2,000,000 in 2007-2008, $3,500,000 in 2009, Repealed in 2010, $1,000,000 in 2011.) See also "Unified Credit".
EXECUTOR/EXECUTRIX:
The one nominated in a Will and thereafter appointed by the Circuit Court Clerk (Probate Court) to manage and distribute a decedent's estate in accordance with the terms of the Will. May also be referred to as a Personal Representative.
FAMILY TRUST:
A Trust established to benefit one's spouse, children and/or other family members. Often used in reference as the "B" trust in the A-B Trust discussed above.
FAMILY LIMITED PARTNERSHIP:
A business entity used to maximize the benefit of lifetime gifting of family assets so as to minimize the Federal Estate Taxes due at one's death.
FIDUCIARY RESPONSIBILITY:
The highest level of responsibility of trust imposed upon one by the law, requiring the utmost degree of integrity and prudence in dealing with the property entrusted to the fiduciary (e.g. Trustee, Administrator, Executor, Guardian, Conservator), similar to the duty owed by an Attorney to a client and a Physician to a patient.
FUNDING (A TRUST):
Re-registering legal title to one's assets in the name of the Trustee of the Trust and coordinating one's beneficiary appropriately with the same.
GENERAL NEEDS TRUST:
A subtrust held for a beneficiary which generally allows all income to be paid annually and restricts principal distributions to the legally accepted ascertainable standards of needs: health, education, support, and maintenance.
GENERATION SKIPPING TRANSFER (GST) TAX:
A federal tax imposed on certain transfers, either by gift or at death, between a donor/decedent and a person more than one generation removed (e.g., a grandchild). Although the GST does not apply in 2010, it returns in 2011 at a 55% rate.
GIFT TAX:
Federal tax on completed gifts from one person to another. Under the Internal Revenue Code, the Gift Tax and the Estate Tax are actually one unified tax, with the same rates applying to each. There is currently an annual exclusion of $13,000 applying to each gift of a present interest from a donor to each donee. Each U.S. resident also has a $1,000,000 lifetime Gift Tax Exclusion.
GIFT TRUST:
An Irrevocable Trust established to act as the repository of gifts to its beneficiaries, drafted such that the gifts to the trust will be excluded from the donor's taxable estate at death. (See also "Crummey Trust".)
GRANTOR:
The person who establishes a Trust. Also referred to as the "Trustor" and "Trustmaker," and formerly often referred to as the "Settlor" of the Trust.
GROSS ESTATE:
The total value, for estate tax purposes, of everything in which one has an ownership interest, control interest, or some other includable interest as defined by the IRS at the time of death.
GUARDIANSHIP:
Court proceeding initiated to supervise management of the personal affairs (e.g. living accommodations, nursing home selection) of an incapacitated or incompetent person. In some states the term "guardianship" also refers to the procedure used to manage property and legal affairs of the incapacitated or incompetent person.
HEIR:
The person entitled to distribution of an asset or property interest under applicable state law, in the absence of a Will. (Note that "heir" and "beneficiary" are not synonymous, though they may refer to the same individual in a particular case.) Your heirs are the ones who will inherit your property if you die with no valid Will or Trust in effect.
HEALTH CARE POWER OF ATTORNEY:
A document which designates one's chosen agents for making medical decisions in the event of one's incapacity. It is particularly useful for clarifying which family member is the chosen spokesperson and for waiving burdensome medical privacy restrictions for the family (see HIPAA)
HIPAA:
HIPAA is the abbreviated name of the Health Insurance and Accountability Act of 1996, which had many broad effects on the health care industry. With respect to Estate Planning, HIPAA enacted strict medical privacy rules preventing unauthorized release of medical information. These privacy rules often have the unintended effect of keeping medical bills and records from spouses and family taking care of incompetent people.
INSURANCE TRUST (AKA "ILIT"):
An irrevocable trust established to own life insurance on a person, so designed as to exclude the proceeds of the policy - the death benefit - from the insured person's taxable estate at death.
INTESTATE/ INTESTACY:
Dying without leaving a valid Will or Trust in effect, such that the decedent's estate is distributed in accordance with state law. (See "Heir" above.)
IRREVOCABLE TRUST:
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.
JOINT OWNERSHIP:
Any arrangement through which title to an asset is shared by more than one owner. (See "Joint Tenancy," "Tenancy-by-the-Entirety," "Tenancy-in-Common.")
JOINT TENANCY:
A form of joint ownership of property that carries an automatic right of survivorship, such that title to the property automatically vests in the surviving joint tenant(s) by operation of law upon the death of one joint tenant. (Contrast with "Tenants-in-Common".)
LEGAL TITLE:
"Registered ownership" of an asset. Refers to the person(s) whose name is on the deed, signature card, registration certificate, etc.
LIMITED LIABILITY:
A benefit of Corporations and LLCs which restricts an investor's potential loss to his or her investment; with limited liability, an owner's investment in the corporation or LLC may be lost but not one's personal assets.
LIVING WILL:
The instrument used to express one's wishes for treatment in the event of irreversible terminal condition or persistent vegetative state.
LLC (LIMITED LIABILITY COMPANY):
A business entity popular for its combination of the major benefits of corporations (limited liability, multiple classes of ownership, and perpetual life) which has greater flexibility as to tax status, company structure, and management than do corporations.
MARITAL DEDUCTION:
The deduction against gross estate value accorded by the Internal Revenue Code for transfers by gift or upon death to one's spouse. Under current law the marital deduction is unlimited, e.g. there is no estate or gift tax on qualifying transfers of any amount to a U.S. citizen spouse. (See QDOT below with respect to non-U.S. citizen spouses.)
MARITAL TRUST:
The "A" Trust established to hold the surviving spouse's share of property upon the death of first spouse to die (see also "A-B Trust" above). This trust qualifies for the marital deduction (see above).
MULTI-GENERATION TRUST:
A Trust designed to benefit not just the Trustmaker and his or her children but which will also continue in perpetuity for the benefit of grandchildren and their descendants.
PERSONAL REPRESENTATIVE:
An executor or administrator. The generic term for court appointed "Fiduciary"
POUR-OVER WILL:
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 Pour-Over Will also revokes all prior wills, but unlike traditional wills it does not contain detailed dispositive provisions; rather it directs distribution of all individually owned property of the Testator to the Trustee of his/her Trust. The Trust instrument contains detailed instructions relating to the distribution of the property. Like all Wills, a Pour-Over Will must be admitted to probate to be effective.
POWER-OF-ATTORNEY:
A legal instrument whereby one appoints and empowers another person as agent to deal with one's property and affairs. (See Agent, above). A General Power-of-Attorney is one which gives the Attorney-in-Fact broad, plenary powers; a 'Limited' or 'Special' Power-of-Attorney limits the attorney-in-fact's authority to a particular property or type of transaction. A Durable Power-of-Attorney is one which remains effective even after the maker becomes incapacitated.
PROBATE:
The process, usually administered by a probate court or an administrator subject to the court's authority, established in all fifty states to supervise the transfer of legal title to property from a decedent to his or her other heirs or beneficiaries, and to supervise the management of the property and affairs of one incapable of handling his or her own affairs.
PROPERTY:
Assets which can be owned; divided into land interests (Real Property or realty) and assets unattached to land (personal property, personalty or chattels {from the Middle English word for cattle}).
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 residence to the Trust, which transfers ownership of the residence over a set a period of years. The original owner retains the right to reside in the residence for life.
RETIREMENT ACCOUNTS:
Any of the various accounts, funds or plans established to provide retirement benefits for an individual, created pursuant to federal laws and regulations and providing for tax-deferred accumulation during the life of the account, including IRAs, 401(k)s, 403(b)s, Pension and Profit Sharing Plans, etc. These accounts, with the exception of "Roth IRAs" and "Education IRAs", are subject to income tax upon withdrawal. They are also includable in the estate of the owner for Estate Tax purposes.
REVOCABLE LIVING TRUST:
A trust established by an individual, or a married couple, that becomes effective immediately upon establishment while the Trustor is still alive (thus "Living"), remains revocable and amendable during the lifetime of the Trustor (thus "Revocable"), and is used to (1) avoid probate; (2) facilitate some tax planning; (3) provide for management during periods of incapacity without need for guardianship or conservatorship; (4) address family circumstances; and (5) provide for ultimate distribution of the estate.
ROTH IRA:
A special form of IRA for which the owner receives no income tax deduction for contributions, but the account does accumulate tax-deferred. Most significantly, withdrawals from the Roth IRA are not subject to income taxation.
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.
SPENDTHRIFT TRUST:
A trust established for a beneficiary which insulates the principal of the trust from the creditors of a beneficiary.
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:
Personal property which ordinarily has no registered ownership attached to it, e.g. furniture, clothing, jewelry, antiques, collections, etc., but not cash or other financial assets.
TENANCY-BY-THE-ENTIRETY ("TBE"):
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. TBE ownership provides some creditor protection in some states, including the Commonwealth of Virginia.
TENANCY-IN-COMMON:
A form of joint ownership in which a deceased tenant's share passes to his/her heirs or beneficiaries through his/her estate under the terms of a Will or in accordance with the laws of intestate succession in the absence of a Will (Contrast with Joint Tenancy).
TESTAMENTARY TRUST:
A Trust established in a person's Will. A Testamentary Trust only comes into operation after the Will has been probated and the assets have been distributed in accordance with the probate court order. In many states, Testamentary Trusts remain subject to the jurisdiction of the probate court.
TESTATOR/TESTATRIX:
Person who makes a Will.
TRUST:
A legal arrangement in which "legal title" to assets is transferred to a "Trustee", who thereafter has the fiduciary duty to manage and distribute the Trust assets for the benefit of the beneficiaries of the Trust, all in accordance with the instructions contained in the Trust document ("Declaration of Trust"). The beneficiaries hold "equitable title" to those assets. Trusts of various types are frequently used in estate planning to achieve tax, financial, and personal objectives.
TRUSTEE:
One who holds legal title to Trust assets, managing and distributing those assets in accordance with the terms and conditions specified in the Declaration of Trust. A Trustee may be an individual or a bank or a trust company licensed to serve as a Trustee. A Trust may have one or more Trustees (Co-Trustees) who act together.
TRUST PROPERTY:
The assets transferred to the Trustee by re-registering their legal titles in the name of the Trustee. Trust Property can include real estate, bank accounts, stock, bonds, brokerage accounts, partnership interests, tangible personal property, and many other types of financial and legal interests.
UNIFIED CREDIT:
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). In 2001 it was $675,000; by 2009 the exemption rose to $3,500,000. In 2010, the Estate Tax is abolished. However, present law provides for the reinstatement of the Estate Tax in 2011.
WILL:
The legal instrument traditionally used to direct disposition of one's property after death. A Will has three main functions: to name an Executor (or Personal Representative) to manage the estate, to designate Beneficiaries of the estate and to nominate a Guardian for any minor children. |
The Attorneys of Johnson, Gasink & Baxter, LLP assist clients throughout Virginia, including but not limited to Williamsburg, James City County, York County, Poquoson, Fort Eustis, Newport News, Hampton, Virginia Beach, Sandbridge, Norfolk, Chesapeake, Suffolk, Toano, Norge, Lightfoot, New Kent County, Providence Forge, Surry, Charles City, Henrico County, Richmond, Hanover County, Mechanicsville, Ashland, Glen Allen, Charlottesville, and Northern VA.
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