Estate Planning Glossary
An administrator is a person appointed by the court to settle the estate of a person who dies without a will or with a will that does not designate an executor.
Advance Medical Directive
An advance medical directive is a document that provides instructions concerning a person’s healthcare if the person can not give those instructions. There are two different types of advance medical directives. The first is a living will that gives instructions concerning a person’s healthcare if the person is dying. The second is a medical power of attorney that appoints an agent to make healthcare decisions for a person who is incapable of making these decisions. Frequently, an advance medical directive will include both a living will and a medical power of attorney.
Applicable Exemption Amount
The Applicable Exemption Amount (also known as the Unified Credit) is the amount that you can give away during your life or at your death without paying a federal gift or estate tax. Under existing law, this amount is $3.5 million in 2009. The estate tax is scheduled to be repealed in 2010 and be reinstated in 2011.
Credit Shelter Trust
A credit shelter trust is a trust designed to use the decedent’s Applicable Exemption Amount, but retain the assets in trust for the benefit of a surviving spouse.
See Irrevocable Life Insurance Trust, below.
d(4)(a) Supplemental or Special Needs Trust
Congress authorized the creation of d(4)(a) supplemental or special needs trusts with the assets of a person with special needs. The assets in a d(4)(a) trust are not considered countable resources for determining the beneficiary’s SSI or Medicaid eligibility. The trust must be: (1) irrevocable, (2) established for a person with special needs under age 65, (3) created by the person with special needs’s parents, grandparents, guardian, or by a court, and (4) required at the person with special needs’s death to repay the state any assets remaining in the trust up to the amount paid under the Medicaid program for the person with special needs.
d(4)(c) Supplemental or Special Needs (“Pooled”) Trust
Congress authorized the creation of d(4)(c) supplemental or special needs trusts with the assets of a person with special needs. The assets in a d(4)(c) trust are not considered countable resources for determining The beneficiary’s SSI or Medicaid eligibility. The trust must be: (1) created by and managed by a nonprofit organization, (2) maintained in a separate account for each beneficiary, (3) created by the person with special needs, the person with special needs’s parents, grandparents, guardian, or by a court, and (4) required at the person with special needs’s death to repay the state any assets remaining in the person with special needs’s account up to the amount paid under the Medicaid program for the person with special needs, or to leave these assets in the trust for the benefit of other persons with special needs.
A disclaimer is an instrument by which one refuses to accept a gift of property.
A disclaimer trust is a trust funded by a disclaimer. It is frequently used to permit a surviving spouse to fund a credit shelter trust with that amount of property necessary to limit the size of the surviving spouse’s estate to the Applicable Exemption Amount.
Durable Power of Attorney
A durable power of attorney is an instrument by which a person, known as the principal, designates another person, known as the agent, to manage the principal’s assets or affairs. Unlike a common law power of attorney, the durable power of attorney does not terminate upon the principal’s incapacity or disability. The durable power of attorney can be effective upon execution (“immediately effective”) or effective upon the principal’s incapacity or other event (“springing”).
An estate tax is a state or federal tax imposed at the decedent’s death upon the decedent’s property.
An executor is a person named in a will to settle the decedent’s estate and to distribute the decedent’s estate in accordance with the terms of the decedent’s will.
Family Limited Partnership or Family Limited Liability Company
A family limited partnership or a family limited liability companies is an entity used to provide for the centralized management and investment of family assets. They are taxed as partnerships for income tax purposes and provide discounts in valuation for gift and estate tax purposes.
The term fiduciary includes executors, administrators, trustees, guardians, conservators, and agents. A fiduciary is a person who manages the assets or affairs of another person. The fiduciary is required to follow the instructions contained in the instrument that appointed the fiduciary and the various laws that pertain to fiduciaries, such as the Prudent Investor Act and the Uniform Principal and Income Act. The fiduciary owes certain duties to the beneficiary. These duties include the duty of loyalty, to use due care, to avoid conflicts of interest, and to provide information. A fiduciary that violates the instructions in the governing instrument, applicable laws, or fiduciary duties is liable to the beneficiary for any damages that the beneficiary suffers as a result of the violation.
A gift tax is a state or federal tax imposed on a donor when the donor makes a gift of property.
An incentive trust is a trust created to provide an incentive to the beneficiary to avoid certain conduct or to induce the beneficiary to engage in certain conduct. For example, the trust could provide for: (1) a suspension of distributions if the beneficiary is addicted to or abuses drugs or alcohol, or (2) distributions to the beneficiary if the beneficiary obtains an education or is gainfully employed.
Irrevocable Life Insurance Trust (ILIT)
An irrevocable life insurance trust is an irrevocable trust which is the owner and beneficiary of a life insurance policy insuring the life of the grantor. The trust agreement will frequently contain “Crummey” withdrawal powers for the beneficiary to insure that gifts to the trust qualify for the gift tax annual exclusion. Provided that the grantor never owned the life insurance in the trust or transferred ownership of the life insurance to the trust more than three years prior to his or her death, the face value of the life insurance will not be included in the grantor’s taxable estate for estate tax purposes.
See Advance Medical Directive, above.
Marital agreements are agreements between married persons for the purpose of settling the rights and obligations of either or both of them. These rights and obligations may include: (1) their rights in any property of either or both of them, (2) the disposition of property upon their separation, divorce or death, (3) spousal support, (4) the making of a will, and (5) any other matter not in violation of the law or public policy.
Medicaid is a need based program that provides medical care, including nursing home care, to the aged, blind or disabled who meet resource and income tests.
Medical Power of Attorney
See Advance Medical Directive, above.
Per Stirpes Distributions
Gifts or distributions to a deceased person’s descendants per stirpes are made by dividing the assets into as many shares as there are then-living children of the deceased person and deceased children of the deceased person who left then-living descendants. Each then-living child is given one share, and the share of each deceased child is divided among this child’s then-living descendants in the same manner.
A premarital agreement is an agreement between prospective spouses made in anticipation of and to be effective upon their marriage. The purpose of the agreement is to settle the spouses’ rights and obligations with respect to: (1) their rights in any property of either or both of them, (2) the disposition of property upon separation, divorce or death, (3) spousal support, (4) the making of a will, and (5) any other matter not in violation of the law or public policy.
Probate is the judicial process by which an instrument is proven to be the decedent’s will. It is also frequently used to refer to the judicially supervised administration of the decedent’s estate.
The probate tax is a state tax imposed on the decedent’s estate under the control of an executor or administrator.
A Q-TIP trust is a qualified terminal interest property trust. The Q-TIP trust requires the trustee to distribute all of the income of the trust to a surviving spouse. It may permit the trustee to make principal distributions only to the surviving spouse. The Q-TIP trust qualifies for the estate tax marital deduction and is frequently used by persons in a second marriage who wish to preserve the trust principal for children by a prior marriage.
Revocable Living Trust
A revocable living trust is a trust designed to dispose of the decedent’s assets at the decedent’s death in order to avoid the probate process. It is a will substitute.
A spendthrift trust is a trust that is designed to protect the trust assets from the beneficiary’s creditors.
Supplemental Security Income (SSI)
SSI is a needs based program under the Social Security Act that provides income benefits to the aged, blind or disabled.
Special Needs Trust (SNT)
An SNT is a trust created for the benefit of a beneficiary who receives SSI or Medicaid. The trust is drafted to provide discretionary benefits to the beneficiary, but not to be considered a countable resource for the beneficiary’s SSI or Medicaid eligibility.
Third Party Supplemental or Special Needs Trust (SNT)
A third party supplemental or special needs trust is an SNT created for the benefit of a person with special needs with the assets of someone other than the person with special needs. The trust is drafted to provide discretionary benefits to the beneficiary, but not to be considered a countable resource for the beneficiary’s SSI or Medicaid eligibility.
A trust is an agreement by which a grantor or settlor transfers property to a trustee to manage for the benefit of a beneficiary. The trust can be created during the grantor’s life by an agreement (“intervivos trust”) or at the grantor’s death by the grantor’s will (“testamentary trust”). The trust may be subject to revocation by the grantor (“revocable trust”) or be irrevocable (“irrevocable trust”).
A trustee is a person who administers a trust in accordance with the terms of the trust agreement.
A will is an instrument that appoints an executor to settle the decedent’s estate and provides instructions for the distribution of the decedent’s assets.