A Trust: The trust formed to hold the surviving spouse’s portion under an AB trust (see AB Trust). Often called the “marital trust“.
Accounting: In estate planning, an accounting refers to assembling a fiduciary‘s financial actions into report (the “Accounting”) which is submitted to the beneficiaries for approval. An accounting can be a Formal Accounting or it can be an Informal Accounting.
Administration: The process during which the executor or personal representative collects the decedent‘s assets, pays all debts and claims, and distributes the residue of the estate according to the will or the state law intestacy rules (when there is no will).
Administrator: The one appointed by the Probate Court to manage the probate estate when no executor has been designated, or where the designated executor is unable or unwilling to serve.
Advanced Medical Directive: A legal document in which a person nominates an agent or surrogate to make medical decisions when the person is unable to do so, and which gives the surrogate or agent the right to authorize the withholding of medical care.
Age of Majority: In most states, 18. The legally recognized age of adulthood.
Agent: A person or entity acting on behalf of another person at their request, most commonly by being given that power through a power of attorney.
Alternate Beneficiary: The beneficiary who would receive the estate or trust assets if the primary beneficiary named dies before the grantor or fails to live until the asset is distributed.
Alternate Valuation Date: Under the federal estate tax, the date exactly 6 months following the decedent’s date of death that the executor may choose to use as the valuation date for estate assets rather than using the typical valuation date, which is the date of death.
Ancillary Administration/Ancillary Probate: An estate administration necessary in a second state, following the initial administration. Typically required because the deceased owned real estate in more than one state. Ancillary administration can be avoided by using a revocable living trust.
Annual Exclusion/Gift Tax Annual Exclusion: The amount an individual may give annually to each of an unlimited number of recipients free of federal gift or other transfer taxes and without any IRS reporting requirements. In addition, these gifts do not use any of an individual’s federal gift tax exemption amount. The annual exclusion is indexed for inflation and is $14,000 per donee for 2014.
Annuity: The periodic payment of a definite sum of money for either a term of years or a lifetime.
Applicable Exclusion Amount: Another term for the estate tax exemption amount (formerly known as the unified credit), which when used in calculating the federal estate and gift taxes shelters a certain amount from the taxes. The applicable exclusion amount is $5,000,000.00 adjusted annually for inflation.
Ascertainable Standard: A term from the IRS tax code that was further clarified in the IRS regulations. When used in estate planning, the term usually refers to the broad example of an ascertainable standard relating to a trustee‘s ability to make distributions to a beneficiary for the beneficiary’s health, education, support or maintenance. The IRS will not include the trust assets in the trustee/beneficiary’s estate for estate tax purposes if the trust uses ascertainable standard.
Asset Protection: In estate planning, asset protection refers to many varied techniques used to shelter assets from creditors, divorce and taxes.
Asset Protection Trust: An irrevocable trust designed to allow the grantor to be a trust beneficiary while shielding the trust property from the grantor’s future creditors.
Assets: A general term referring to all items a person owns which could be made available for payment of the person’s debts.
Attorney-in-Fact: The 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.
Basis: The amount you paid for an asset, plus any capital expenses added to the asset during your ownership, plus any out of pocket expenses. For example, if you paid $300,000 for a building, then spent $100,000 years later to add an addition, your basis is $400,000. If you bought a stock for $40.00, then your basis in the stock is $40.
Beneficiary: A person who will receive the benefit of property from an estate or trust through the right to receive a bequest or to receive income or trust principal over a period of tim
Beneficiary Representation: In estate litigation, the fiduciary is free to retain an attorney, but the beneficiaries of the estate or trust are also free to retain an attorney to guide and advise them. When an estate attorney represents a beneficiary in litigation, it is referred to as Beneficiary Representation.
Bequest: A gift given by will.
Breach of Fiduciary Duty: All fiduciaries, executors, trustees, agents, etc., owe the person they serve a duty of responsibility. If there is a failure by the fiduciary to fulfill that duty, it is referred to as a “Breach of Fiduciary Duty”.
Buy-Sell Agreement: An agreement between business owners forming a legal contract stipulating how the remaining owners will purchase the interest of the departing owner.
By-Pass Trust: The “B Trust” in AB Trust planning, also known as “Credit Shelter Trust.” Created to hold assets of a value equal to the decedent’s estate tax exclusion amount on such terms that those assets will “by-pass” further estate taxes when the initial beneficiary of the Trust dies.
Capacity: The legal competence to perform a given act. (e.g. to write a Will or Trust, sign a Power of Attorney or to enter into a binding contract.)
Capital Gains Tax: A tax levied on the profit you receive when you sell an asset, which is the difference between the assets basis and the amount you received from the buyer. For example, if you bought a stock for $40 and then sold it for $50, your capital gains are $10, which are subject to the capital gains tax.
Certificate of Trust: An verification of a trust’s existence which normally identifies the trustees and explains the trustee powers, but does not reveal the trust’s assets, beneficiaries or the trust terms.
Charitable lead trust: A trust you may create during your lifetime or at your death that distributes an annuity or unitrust amount to a charity for either life or a term of years. The remainder passes to your selected non-charitable beneficiaries. The charity receives the money first, so it is a “lead” trust.
Charitable remainder trust: A trust you may create during your lifetime or at your death that distributes an annuity or unitrust amount to your selected non-charitable beneficiaries for life or a term of years. The remainder passes to charity. The charity receives the “remainder”, so it is a charitable “remainder” trust. A popular aspect of Charitable remainder trusts is that if you transfer into the trust assets with low basis, when those assets are sold the capital gains taxes are not immediately paid. Instead, the full sale proceeds remain in the trust. As the beneficiaries receive annual distributions they recognize a portion of the amount distributed as capital gains. The remainder is kept in the trust and reinvested.
Closely-Held Business: A business where ownership is held by a small number of people, often within the same family.
Closing Letter: A letter sent by the IRS to the executor stating that the estate’s federal estate tax return has been accepted.
Co-Trustees: Two or more persons or entities named to act together as trustee.
Codicil: A formally executed document that adds to or changes the terms of a will so that a complete rewriting of the will is not necessary.
Common Disaster Clause: A clause within a will dictating how property is distributed if the testator and the beneficiary die from the same incident.
Community Property: Certain states have adopted a theory of property ownership during marriage under which all property acquired during the marriage is presumed owned jointly by the married couple. These states are known as Community Property States.
Conservator: A court appointed and overseen person or corporate fiduciary given the duty and responsibility to manage the assets of a person the court deems unable to manage the asset without assistance.
Consideration: When referring to a purchase, something that has value, such as real estate or cash given in exchange for something else.
Contracts to Will: Binding terms between two or more people binding the participants to have specific terms in the wills which will come into effect at death.
Corporate Trustee: A professional trustee, typically a bank or trust company.
Corpus: When referring to trust property, the principal of the asset rather than the income.
Credit Shelter Trust: Another name for the bypass or “B-Trust” in an AB estate plan. (see AB Trust).
Crummey Trust: An irrevocable Trust established to qualify contributions for the annual federal gift tax exclusion ($14,000 in 2017) 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.
Custodian: Under the Uniform Transfer to Minors Act, the person or entity named to manage the assets of a minor child.
Decedent: The individual who has died.
Descendants: The term is defined by state law, but in general a descendant is a person’s children, grandchildren, great-grandchildren, etc. related by blood or if legally adopted into the bloodline. “Issue” and descendant are typically interchangeable.
Designated Beneficiary: A beneficiary of a retirement account (IRA, 401(k), 403(b), etc.) specifically named in the contract with the investment company of the funds. The term “designated beneficiary” under the I.R.S. regulations requires that to qualify as a beneficiary he or she must be an individual with an ascertainable life expectancy. Therefore, for example, a charitable organization cannot qualify as a “designated beneficiary.”
Devise: As a noun, the real or personal property passing to a beneficiary by will. As a verb, to dispose of real or personal property by a will.
Disclaimer Trust: A reference to a protective trust formed in a will into which pour assets disclaimed by the surviving spouse.
Discovery: During litigation, the compulsory disclosure of relevant information including documents and other evidence by a party to the legal action.
Discretionary Trust: A trust in which the grantor has delegated discretion to the trustee to decide the timing and amount of distributions to the beneficiary.
Disinherit: To legally bar someone from inheriting from you at your death.
Divisee: The person to receive property under a will.
Domicile: A person’s fixed and permanent place of habitation.
Donee: One who receives the gift.
Donor: One who makes a gift.
Durable Power of Attorney: A power of attorney that does not terminate upon the incapacity of the person making the power of attorney.
Dynasty Trust: A trust whose terms allow it to stay in effect for the benefit of multiple future generations and typically avoids estate, inheritance and generation skipping taxes while sheltering the trust assets from the beneficiaries’ creditors and marital disputes.
Education Trust: Refers to a trust created to provide for the beneficiary’s education. The terms of an education trust can vary, and can be crafted to meet the needs of the grantor and beneficiary.
Equitable Title: Beneficial ownership of an asset; the right to use, spend, consume and/or enjoy an asset or its income.
Escheats: When a decedent’s assets pass to the state because of a lack of heirs.
Estate Planning: The process by which an individual designs a strategy and executes a will, trust agreement, life insurance contracts, Power of Attorney and Living Wills and/or other documents to provide for the administration of his or her assets upon his or her incapacity or death. State and Federal transfer tax consequences and planning are part of this process.
Estate Tax: Tax imposed on the transfer of property from a decedent to his or her heirs or beneficiaries. The 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.
Estate tax exemption amount: Another name for the unified credit amount, applicable exclusion amount, and credit shelter amount.
Exclusion Amount: A term used by the Internal Revenue Code to identify the value of assets owned by a decedent effectively exempt from the federal estate tax.
Executor (male)/Executrix (female): Named in a Will, either to serve alone or with a Co-Executor, by the testator and then appointed by the Probate Court to manage and distribute a decedent’s estate in accordance with the terms of the Will. Can also be referred to as a Personal Representative.
Fair Market Value: For federal estate tax purposes, fair market value is what a willing buyer would pay to a willing seller for an asset, assuming both have a reasonable knowledge of an the assets worth and neither are under pressure to sell or buy.
Family Allowance: An amount that passes to a spouse or descendant living with the deceased free of state inheritance tax.
Family Limited Liability Company: Refers to a Limited Liability Company (LLC) formed specifically to aid in the transfer of assets from parents to children in a series of steps designed to reduce estate taxes.
Family Limited Partnership (FLP): Refers to a Limited Partnership (LP) formed specifically to aid in the transfer of assets from parents to children in a series of steps designed to reduce estate taxes.
Family Office: In estate planning, large estates that affect several generations require constant management and oversight by a professional team. The Family Office refers a group of professionals that oversee and coordinate the legal, tax, accounting and business aspects of one or more families.
Family Trust: A Trust established to benefit one’s spouse, children and/or other family members. Often used in reference to the By-Pass Trust discussed above.
Federal Estate Tax: The Federal Estate Tax is a transfer tax levied on the transfer of worldwide assets of U.S. Citizens and residents at their deaths. The current estate tax cut-off is $5.34 million per person; estates below that amount do not pay Federal Estate Tax.
Fiduciary: An individual including an executor or a trustee, bank, or trust company designated to manage money or property for beneficiaries, or a named corporation required to exercise the standard of care set forth in the governing document under which the fiduciary acts and state law.
Florida Rules of Intestacy: Refers to the laws that determine who is entitled to the property of a deceased Florida resident who had no Will. It also can be referred to as the Law of Descent and Distribution.
Formal Accounting: A report assembled by the fiduciary that is submitted to the court for approval. All interested parties are then given notice of the accounting and are free to submit objections to the judge.
Fractional Interest: The less than 100% share of ownership held by a co-owner of an asset.
Funding a Trust: The process of transferring ownership of assets into a trust.
Generation Skipping Tax Trust: A trust designed to have “skip” generation beneficiaries who, without the planning, would cause the trust assets to otherwise pay the Generation Skipping Tax. These trusts are also typically Dynasty Trusts.
Generation Skipping Transfer (GST) Tax: A federal tax imposed on outright gifts and transfers made in trust, whether during lifetime or at death, to the benefit of beneficiaries two or more generations younger than the donor, such as grandchildren, that exceed the GST tax exemption. The GST tax imposes a tax on transfers that otherwise would avoid one generational level of gift or estate tax.
Generation Skipping Trust: Refers to a trust created to shelter the trust assets from the Generation Skipping Transfer Tax. The terms of a GST Trust can vary and be crafted to meet the needs of the grantor and beneficiary.
Gift Splitting: For federal gift tax planning, a gift that is made by one spouse to a third person and that, for gift tax, is treated as being made one half by both spouses.
Gift Tax: The tax on gifts or completed lifetime transfers from one individual directly to, or for the benefit of another (other than annual exclusion gifts and certain direct payments to providers of education and medical care) that exceed the gift tax exemption amount of $5.34 million per person. Under the concept of portability in the tax law, if your spouse predeceased you after 2010 with remaining unused exemption (the deceased spouse unused exemption) and an estate tax return was filed, you would be able to take advantage of that unused exemption amount as well.
Grantor Retained Annuity Trust (GRAT): An irrevocable trust formed as part of an estate plan with the goal of passing assets without payment of estate tax. The trust pays a fixed annuity to the grantor for a defined term, with the remainder passing either outright or in further trust for noncharitable beneficiaries, typically the grantor’s children.
Grantor Retained Unitrust (GRUT): Similar to a GRAT, except that rather than a fixed annuity, the trust pays back to the grantor a percentage of the trust’s value each year.
Grantor trust: A trust where the grantor retains control and the grantor is taxed individually on the trust’s income and pays the income taxes that otherwise would be payable by the trust or its beneficiaries. Such tax payments are not treated as gifts by the grantor to the trust or its beneficiaries. Provided the grantor does not retain certain powers or benefits, such as a life estate in the trust or the power to revoke the trust, the trust assets will not be included in the grantor’s estate for federal estate tax purposes.
Gross Estate: The total value for of all property owned by an individual at death and certain property previously transferred during life that is subject to federal estate tax. When calculating the estate tax or an inheritance tax, total fair market value of your assets at your death, plus certain additions such as past gifts that are included to calculate the tax. Unlike the probate estate, the gross estate will include assets held in a revocable living trust, assets held in certain irrevocable trusts, life insurance, annuities, and payable on death accounts. See Taxable Estate.
Guardian: An individual, bank or trust company appointed by a court to act for a minor or incapacitated person. A guardian of the person is empowered to make personal decisions for the individual. A guardian of the property manages the property of the individual. These tasks are done with court oversight and accountability standards.
Guardianship: Court proceeding initiated to supervise management of the personal affairs (e.g. living accommodations, financial decisions etc.) of a minor or a person when it is believed they are incapacitated. See Guardian.
Health Care Power of Attorney: A document that appoints an individual or individuals, also known as an “agent,” to make health care decisions upon temporary or permanent incapacity.
Heir: The person entitled to distribution of an asset or property interest under applicable state law, or the laws of intestacy when there is no Will or Trust. (“Heir” and “beneficiary” are not synonymous, though they may refer to the same individual in a particular case.)
Holographic Will: A handwritten will.
Incapacitated: Not having the legal competence to perform a given act (see Capacity). Having the capacity to sign contracts is a higher standard that signing a will and standards will differ between jurisdictions.
Income: When used in estate planning concepts, income refers to the earnings from principal, such as interest, rent and cash dividends. Income in this context does not include capital gains, and is not the same as income for income tax purposes.
Informal Accounting: A report assembled by the fiduciary that is submitted to the beneficiaries, outside the court, for their approval. If the beneficiaries approve the accounting and sign a release, it can be as binding on all parties as if a judge approved a Taxable Estate.
Inheritance Tax: Tax imposed by some states on the amount received by a particular heir or beneficiary. The rate of this tax is often based on kinship to the deceased individual and set by state law; a spouse is exempt in most instances from this transfer tax.
Insurance Trust: Also known as “ILIT” which stands for Irrevocable Life Insurance Trust. This type of trust is established prior to the purchase of a life insurance policy, to own that policy in the place of the insured, in order to exclude the insurance proceeds of the policy from the insured person’s taxable estate at death.
Intentionally Defective Grantor Trust (IDGT): An irrevocable trust designed so that it is treated as owned by the grantor for income tax purposes but not for estate tax purposes. The gifts to the trust are out of the grantor’s taxable estate, but the grantor continues to report all income as if the grantor still owns the property. This is done “intentionally” so the grantor can pay the income tax for the beneficiaries as an additional gift.
Inter Vivos: Latin term meaning “between the living.”
Inter Vivos Trust: A trust created by a person during his or her lifetime, rather than at their death through a will. The most typical example of an Inter Vivos Trust is a Revocable Living Trust.
Interest of a Beneficiary: A beneficiary’s “interest” in a trust or estate refers to the legal right of the beneficiary to receive income or principal.
Interrogatories and Requests for Documents: An Interrogatory is part of the discovery process during litigation. An interrogatory is a written question or series of questions formally submitted to a party in the case by another party in the case that must be answered. The interrogatory often includes a written request for specific documents to accompany the answers to the questions.
Intestate: Dying without leaving a valid Will or Trust in effect, such that the decedent’s estate is distributed in accordance with the intestacy laws of the state to his or her “heirs.”
Intestate Succession: The legal distribution of a person’s estate who dies without a will.
Invasion of a Trust: A distribution of trust assets to the beneficiary out of the trust’s principal.
Inventory: A list of the assets of a decedent or trust that is filed with the court.
IRA: Individual Retirement Account; allows for tax-deferred retirement savings. See Retirement Account.
Irrevocable Trust: A Trust that cannot be revoked, modified or amended (except to a very limited extent) once it has been established. Irrevocable Trusts are often used in tax planning to remove property of a person’s taxable estate so that it will not be subject to estate tax upon his or her death or when purchasing an insurance policy, see “Insurance Trust“.
Joint Tenancy or Joint Tenants with Right of Survivorship: A form of ownership where two or more persons own property, such as real estate or a stock account, and during these owner’s lifetimes they own whatever share in the asset that the agreement reflects, but they have a binding agreement that upon the death of one owner the surviving owner has the right to claim the deceased owner’s share. Choosing not to exercise this right is called a disclaimer.
Joint Will: Two persons, usually spouses, can sign a single will signed by them both. Typically this will gives all assets to the surviving person in trust and then document states where the remainder will pass at the survivor’s death. Usually the terms cannot be changed after the first person’s death.
Legal Title: “Registered ownership” of an asset. Refers to the person(s) whose name is on the deed, signature card, registration certificate, etc.
LGBT: In estate planning, a term referring to planning for individual and couples who are lesbian, gay, bisexual or transgender.
Life beneficiary: An individual who receives income or principal from a trust or similar arrangement for the duration of his or her lifetime.
Life Estate: The interest owned by a life beneficiary to use the property for his or her lifetime, after which title fully vests in the remainderman (the person named in the deed, trust agreement, or other legal document as being the ultimate owner when the life estate ends).
Lineal Descendant: A person who is in the direct line of decent from an ancestor.
Living Trust: A trust created by an individual during his or her lifetime, typically as a revocable trust. Also referred to as an “inter vivos” trust or “revocable living trust.”
Living Will: The instrument used to express your wishes for healthcare treatment and end of life decision in the event of irreversible a terminal condition or persistent vegetative state.
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.
Marital Trust: Trust established to hold the surviving spouse’s share of property upon the death of first spouse to die (see “AB Trust“). Distributions to this Trust by a deceased spouse qualify for the marital deduction. In the AB Trust configuration, the A Trust will be the Marital Trust.
Mirror Wills: Two people, usually spouses, can have wills that are identical with the exception of referring to each other as the heir. Unlike a contract to will, the survivor is free to change the terms after the first person dies. Also referred to as “Reciprocal Wills“.
New Jersey Rules of Intestacy: Refers to the laws that determine who is entitled to the property of a deceased New Jersey resident who had no Will. It also can be referred to as the Law of Descent and Distribution.
New York Rules of Intestacy: Refers to the laws that determine who is entitled to the property of a deceased New York resident who had no Will. It also can be referred to as the Law of Descent and Distribution.
No-Contest Clause: A provision in a will or trust agreement that provides that someone who sues to receive more from the estate or trust or to overturn the document will lose any inheritance rights he or she has. These clauses are not permissible in all instances or in all states.
Non-Resident Alien: A person who is neither a resident nor a citizen of the United States. For estate planning purpose, even an non-resident alien may be subject to the federal estate tax or be required to utilize a state’s probate process for property located in the United States.
Offshore Asset Protection Trust: A trust created and administered under the laws of a country outside of the United States, typically done to shield the trust assets from the grantor’s creditors.
Operation of Law: For assets that do not pass under will, the way the asset will pass at your death because of state law or because of the way the property is titled.
Oral Will: A verbal will, not recorded in writing. Few states accept oral wills.
Orphans’ Court Accounting: Refers to a formal accounting filed by a fiduciary with the Orphans’ Court.
Payable-on-Death Account (POD): A bank account titled in the name of the original owner, but directing distribution to a named beneficiary upon the owner’s death. POD accounts avoid probate administration.
Pennsylvania Inheritance Tax: The Pennsylvania Inheritance Tax is a transfer tax levied by the Commonwealth of Pennsylvania on the assets of all Pennsylvanians and those who have real estate in Pennsylvania. The rates vary, depending on whom is receiving the assets. For example, a gift to a child is taxed at 4.5% while a gift to a friend is taxed at 15%.
Pennsylvania Rules of Intestacy: Refers to the laws that determine who is entitled to the property of a deceased Pennsylvanian who had no Will. It also can be referred to as the Law of Descent and Distribution.
Per Capita: A Latin phrase that distributes property to all surviving descendants equally regardless of generation.
Personal Property: Refers to movable property, such as automobiles, cash, stocks, jewelry and animals. The opposite of real property.
Personal Representative: The executor or administrator of a deceased’s estate.
Petitioner: The Petitioner is the person who presents a petition to the court. See Respondent.
Portability: The ability of a surviving spouse to utilize the unused estates tax exclusion amount of a deceased spouse.
Pour Over Will: A will used in conjunction with a revocable living trust to pass title at death to property not transferred to the trust during lifetime, or to “pour” the remaining assets into the revocable trust.
Power of appointment: A power given to an individual (usually a beneficiary) under the terms of a trust to appoint property to certain persons upon termination of that individual’s interest in the trust or other specified circumstances. The individual given the power is usually referred to as a “holder” of the power. The power of appointment may be general, allowing the property to be appointed to anyone, including the holder, or limited, allowing the property to be distributed to a specified group or to anyone other than the holder. Property subject to a general power of appointment is includible in the holder’s gross estate for federal estate tax purposes.
Power of Attorney: A legal instrument that appoints another person or persons as agent to handle one’s property and affairs in the event they are unable to do so themselves, due to permanent or temporary incapacity, or any host of life events. A very powerful document that is in effect as soon as signed by all parties.
Power of Withdrawal: A present ability to withdraw in favor of the power holder.
Present Interest: To be eligible for the annual $14,000 exclusion from the Federal Gift Tax, the gift must be of a “present interest”. In other words, the gift must belong to the donee with “no strings attached.”
Pretermitted Child: A person who may become an heir by birth or adoption subsequent to the date of a will’s execution.
Principal: The property (such as money, stocks, and real estate) contributed to or otherwise acquired by a trust to generate income and to be used for the benefit of trust beneficiaries according to the trust’s terms. Also referred to as trust corpus.
Private Annuity: A means of transferring property from one person to another by selling it for an unsecured promise to pay the original owner an income for life.
Private Foundation: A tax-exempt charitable entity that may be organized as a corporation or a trust, typically grant-making entities that make distributions to public charities chosen by the foundation’s trustees or directors.
Private Trust Company: Often called a family trust company, an entity formed by a family to serve as the fiduciary for the family’s estates and trusts.
Probate: The process, usually administered by a probate court or an official 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 heirs or beneficiaries, or to supervise the management of the property and affairs of one incapable of handling his or her own affairs.
Probate Tax or Probate Fees: The tax imposed by some states on property passing under a deceased’s will or through intestacy.
Prudent Investor Act: A law that holds the fiduciary accountable and provides for how fiduciaries must invest trust, estate and other assets they have investment power over. This includes trustees and or executors.
Prudent Man Rule: A legal principal requiring a trustee to manage a trust’s property with the same care that a prudent, honest, intelligent, and diligent person would use to handle the property under the same set of circumstances.
Qualified Domestic Trust (QDOT): A marital trust used for the benefit of a non-U.S. citizen spouse. These trusts allow transfers to the QDOT to qualify for a limited estate tax marital deduction, until the monies are actually withdrawn from the Trust at which time tax is required to be paid.
Qualified Personal Residence Trust (QPRT): An irrevocable trust designed to hold title to a person’s residence for a term of years subject to the retained right of the individual to reside in the home for the term, with title passing to others (typically children) at the term’s end.
Qualified Subchapter S Trust (QSST): A trust that meets the IRS Code requirements to own Subchapter S stock.
Qualified Terminable Interest Trust (“QTIP”): A Trust established for the benefit of a surviving spouse, that qualifies for the estate tax marital deduction, but distributes any remaining balance at the survivor’s death to beneficiaries chosen by the deceased spouse in the trust document. Often used in second marriage situations to assure benefits for children of prior marriages.
Quitclaim Deed: A deed that transfers interests in real estate without guarantees.
Rabbi Trust: A trust that functions as a type of nonqualified retirement plan or deferred compensation plan for an employee.
Real Property: Land and the property permanently attached to land (such as a house).
Reciprocal Wills: Two people, usually spouses, can have wills that are identical with the exception of referring to each other as the heir. Unlike a contract to will, the survivor is free to change the terms after the first person dies. Also referred to as “Mirror Wills“.
Remainder interest: An interest in property that does not become possessory until the expiration of some term, such as an intervening income interest, life estate or term of years.
Required Beginning Date (RBD): The date the owner of a qualified plan must begin taking the required minimum distributions from the plan.
Required Minimum Distribution (RMD): The amount the owner of a qualified plan must withdraw each year from the qualified plan after the Required Beginning Date.
Residue: The property remaining in a decedent’s estate after payment of the estate’s debts, taxes, and expenses and after all specific gifts of property and money have been distributed as directed by the will. Also sometimes called the residuary estate.
Respondent: The person who is placed in the position of responding to a petition filed by the Petitioner.
Retirement Accounts: Accounts, funds or plans established to provide retirement benefits for an individual, providing for tax-deferred savings 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 IRA’s,” are subject to income tax upon withdrawal of the funds. They (including Roth IRA’s) are also includable in the estate of the owner for Estate Tax purposes.
Right of Election: A surviving spouse’s right to claim a share of the deceased spouse’s augmented estate rather than accepting the amount provided by the will or intestate succession.
Right of Representation: Describes the division of property when a child receives the share the parent would have received.
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.
S-Corporation: A corporation that has made a Subchapter S election to be taxed as a pass-through entity. In estate planning, certain trusts can allowed to own S-Corporation stocks only if they make appropriate elections so the trust does not violate the qualifying S-Corporation rules.
Self-Settled Asset Protection Trust: A trust in which the grantor is also the person who is to receive the benefits from the trust, usually set up in an effort to protect the assets from creditors.
Separate Property: In general, all property a person acquired prior to a marriage and the assets that person received by gift or inheritance during the marriage.
Settlor: Also referred to as or “Grantor;” alternate term for one who establishes a Trust.
Simple Will: A basic will giving all assets outright to one or more persons without any specific bequests, protective trusts and without addressing tax planning.
Situs: For trust purposes, the location or home of the trust for legal purposes.
Sole Ownership: Title to property held in one name.
Special Needs Trust: A Trust established for a disabled person to provide supplemental support specifically drafted to not count against the individual for eligibility determination for governmental assistance programs (Medicaid/Medicare).
Spendthrift Provision or Clause: A trust provision restricting both voluntary and involuntary transfers of a beneficiary’s interest, frequently in order to protect assets from claims of creditors.
Stepped-up Basis: The basis of property received by an heir, equal to the fair market value of the asset on the day the deceased died.
Successor Trustee/Substitute Trustee: The Trustee who is named to take over upon the death, disability or resignation of the original Trustee or a prior Trustee.
Tangible Personal Property: Property that is capable of being touched and moved, such as personal effects, furniture, jewelry, and automobiles. Tangible personal property is distinguished from intangible personal property that has no physical substance but represents something of value, such as cash, stock certificates, bonds, and insurance policies. Tangible personal property also is distinguished from real property, such as land and items permanently affixed to land, such as buildings.
Taxable Estate: The fair market value of your estate that is subject to tax. The taxable estate will vary, depending on which tax is being referenced. For example, life insurance held by a decedent at death is included in the taxable estate when referring to the federal estate tax, but it is not included in the taxable estate when referring to the Pennsylvania inheritance tax.
Tenancy-by-the-Entirety: A joint ownership arrangement available between married persons, generally with respect to real property, under which the entire property passes to the survivor at the first death and while both are alive, may not be sold without the approval of both.
Tenancy-in-Common: A co-ownership arrangement under which each owner possesses rights and ownership of an undivided interest in the property, which may be sold or transferred by gift during lifetime or at death.
Testamentary: Relating to a will or other document effective at death.
Testamentary Trust: A Trust established in a person’s Will that only comes into operation after the Will has been probated and the assets have been distributed in accordance with the probate court order.
Testamentary Trust Will: A will that within its terms creates one or more trusts upon your death.
Testate: Referring to a person who dies with a will.
Testator (male)/Testatrix (female): Person who makes a Will.
Totten Trust: A pay on death account.
Transfer Tax: A tax levied when ownership of an asset is given, bequeathed or transferred to another. Includes the Estate Tax (federal and state), Inheritance Tax, Gift Tax and Generation Skipping Transfer Tax.
Trust: An arrangement whereby property is legally owned and managed by an individual or corporate fiduciary as named trustee for the benefit of another, called a beneficiary, who is the equitable owner of the property.
Trust Estate (Trust Property): The assets transferred to the Trustee by re-registering their legal titles in the name of the Trustee. The Trust Estate can include real estate, bank accounts, stocks, bonds, brokerage accounts, partnership interests, tangible personal property, and many other types of financial and legal interests.
Trust Instrument: A document, executed by a grantor that contains terms under which the trust property must be managed and distributed. Also referred to as a trust agreement or declaration of trust.
Trustor: The person who made the trust.
Undue Influence: In a will challenge case, if a person used a position of power over the deceased to “influence” that person to change their will to benefit the person with the power in a way that the deceased otherwise would not have done, it is the use of Undue Influence, which can be the basis to have the will disregarded.
Unified Credit: A term that has now been replaced in the tax code, but is still commonly used, referring to the credit each tax payer has against the federal gift and estate tax.
Uniform Gifts to Minors Act (UGMA): A law that allows adults to contribute to a custodial account in the name of a minor without having to form a trust or name a legal guardian.
Uniform Transfer to Minors Act (UTMA): A law enacted by some states providing a convenient means to transfer property to a minor without the need of a trust. An adult person known as a “custodian” is designated by the donor to receive and manage property for the benefit of a minor. Although the legal age of majority in many states may be 18, the donor may authorize the custodian to hold the property until the beneficiary reaches age 21.
Vested Interest: An interest that is certain to occur, as opposed to a contingent interest, which is an interest that may not vest.
Virtual Representation: A will or trust mechanism permitting a beneficiary to make decisions binding on others who would claim or receive property only under or after them.
Warranty Deed: A deed transferring title to real estate where the person transferring the ownership makes guarantees about the validity of the transfer.
Will: A writing that specifies the beneficiaries who are to inherit the testator’s assets and naming a representative to administer the estate and be responsible for distributing the assets to the beneficiaries. To be valid a testator must have legal capacity when the will is written and follow state law.
Will Challenge: Estate litigation that challenges or contests the terms or validity of a will.
Will Contest: Estate litigation that challenges or contests the terms or validity of a will.
Witness: A person who observes the signing of a document and attests to the signature.
Great firm. Great people. Happy to refer folks in need to estate planning to Peter and his team. They do great work.
Peter explained things in a way that was easy to understand. Everything was done in the time frame he said it. Could not have been better!
Mr. Klenk, quickly understood the circumstances presented and provided clear and concise advice. This advice provided me with the information I required to progress the case to my advantage.
Mr. Klenk has been easy to work with. I am confident he has given me good advice whenever I have called upon him. He has shown good work ethic and depth of knowledge in preparation of estate, wills, and trusts that I have worked with him on.
Excellent, knowledgeable team handled a complicated issue with superb results.