A/B Trust. Type of trust which allows married couples to reduce or avoid estate taxes. When the first spouse dies, his or her half of the property goes to the beneficiaries named in the trust with the stipulation that the surviving spouse has the right to use the property for life and is entitled to any income it generates. When the surviving spouse dies, the property passes to the trust beneficiaries. It is not considered part of the second spouse’s estate for estate tax purposes. An A/B trust keeps the surviving spouse’s taxable estate half the size it would be if the property were left directly to the spouse. This type of trust is also known as a bypass or credit shelter trust.
Advance Directive. See “Living Will.”
Attorney-in-Fact. A person named in a power of attorney (POA) document to act on behalf of the person who signs the POA. The attorney-in-fact’s power and responsibilities are defined by the specific powers granted in the power of attorney document.
Beneficiary. A person or entity name to receive benefits, such as a will, trust or life insurance policy.
Bypass Trust. See “A/B Trust.”
Charitable Remainder Trust (CRT). CRTs are charitable giving options utilizing split-interest trusts. Typically, an individual donates assets to the trust but retains the right to receive income from the asset for a preset period of time. At the end of that preset period of time, the assets are given to a charity.
Codicil. An attachment or supplement to a will which is used to explain, modify or revoke provisions in a existing will.
Decedent. A person who has died.
Durable Power of Attorney. Type of power of attorney that continues to remain in effect if the principal becomes incapacitated. If a power of attorney is not specifically made durable, it automatically revokes if the principal becomes incapacitated.
Durable Power of Attorney for Finances. A legal document that grants an individual authority to manage your financial affairs if you become incapacitated. See “Durable POA”
Durable Power of Attorney for Health Care. A legal document that allows you to grant someone permission to make medical decisions for you if you are unable to make those decisions yourself. This document is sometimes called a “Health Care Proxy.”
Elective Share. See “Statutory Share.”
Estate Planning. Planning to structure how your assets will be handled, protected, and distributed both before and after you pass away. Most planning includes one or more of the following: gifting, wills, living trusts, living wills, and powers of attorney.
Executor. The person named in a will to settle the estate of someone who has died. The executor collects the property, pays debts and taxes, and then distributes any remaining assets, as specified in the will or according to your state’s intestacy laws.
Executrix. A female executor. More commonly now included under the generic term of executor. See”Executor.”
Generation-Skipping Trust. A trust designed to avoid estate tax. The trust assets are preserved for the trust maker’s grandchildren, with his or her children receiving only income created from the trust. Because the children (the middle generation) never legally own the property, it isn’t subject to estate tax at their death.
Grantor. Someone who creates a trust. Also called a “trustor” or “settlor.”
Guardian. A person who has been granted the legal right by a court to control and care for a minor’s person or a minor’s property. See also “Guardian of the Estate” and “Guardian of the Person.”
Guardian of the Estate. A person appointed by a court to care for the property of a minor child.
Guardian of the Person. A person appointed by a court to make personal decisions for a minor child, including responsibility for his physical, medical and educational needs.
Health Care Directive. Document that allows you to set out your medical care desires, and appoints a person to make sure those wishes are carried out.
Intestate. The situation which occurs when someone dies without having a valid will.
Intestate Succession. The state written guidelines which govern how property is distributed when a person dies without a valid will.
Irrevocable Life Insurance Trust (ILIT). This an irrevocable trust centered around a life insurance policy. The ILIT can provide liquidity to pay estate debts and also allows the insurance proceeds to be passed to the beneficiaries without first being taxed.
Last Will and Testament. See “Will”.
Letters Testamentary. Documents issued to an executor by the probate court authorizing the executor to act on behalf of the estate.
Living Trust. A revocable trust created during a person’s lifetime. The grantor of the trust is appointed as trustee and retains control over the trust assets. The grantor can amend, alter or revoke the living trust during his or her lifetime. Any assets which are held within the trust at the grantor’s death avoid probate and are distributed according to the terms of the trust.
Living Will. Document which makes known your wishes about certain types of medical treatments and life-prolonging procedures to be used if you can not communicate your own health care decisions. Also called a “Declaration of a Desire for a Natural Death.”
Pour-Over Will. A will that “pours over” property into a trust when the testator dies.
Power of Attorney. Document which gives another person (your attorney-in-fact) legal authority to act on your behalf. A power of attorney may be General (broad or all-inclusive) or Special (limited to certain uses). It may become effective immediately or become valid upon your disability (a springing power of attorney). A power of attorney is void upon your death and also upon your disability unless you direct that it be effective in the event of your disability (a durable power of attorney).
Probate. The court process which occurs once an individual dies and includes: determining if a valid will exists; appointing someone to handle the deceased’s affairs; identifying and inventorying the deceased person’s property; paying debts and taxes; identifying heirs, and distributing the deceased person’s property according to the will or, if there is no will, according to the state’s intestacy law.
QDOT (Qualified Domestic Trust). A trust used to postpone estate taxation in situations where more than the amount of the personal federal estate tax exemption is left to a non-U.S. citizen spouse by the U.S. citizen spouse.
Settlor. See “Grantor.”
Spendthrift Trust. A trust created for a beneficiary the grantor considers irresponsible or incapable with regards to handling money. The spendthrift trust allows the trustee complete control and discretion over when and if to distribute money to the beneficiary. This protects the beneficiary and also can prevent the beneficiary’s creditors from gaining access to the trust assets.
Springing Durable Power of Attorney. This is a durable power of attorney which only comes into effect when and if the maker of the power of attorney becomes incapacitated.
Statutory Share. The portion of a deceased person’s estate that a spouse is entitled to claim under state law. In most states, the surviving spouse must choose either the amount the will provides or the statutory share. Also called a forced or elective share.
Successor Trustee. The person or institution who takes over the management of trust property when the original or presently serving trustee is unable or unwilling to serve.
Testamentary Trust. A trust which is created by a will.
Testator. A person who makes a will.
Trustee. The person or institution who oversees a trust and manages assets held inside the trust.
Will. Document in which you specify what is to be done with your property when you die. You can also use your will to name an executor or name guardians for minor children. If you do not write a will then your state’s intestacy laws dictate how your property is to be distributed. Also called Last Will and Testament.
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