Glossary of Common Estate Planning Terms

Acknowledgement

A statement in front of a person who is qualified to administer oaths (a Notary) that a document bearing the person’s signature was actually signed by the person.

AB Trust

A type planning utilizing irrevocable trusts used by married couples. In this type of trust arrangement, two trusts (trust A and trust B) are created at the time the first spouse dies. By dividing the decedent’s estate into two trusts at the first death, each spouse can pass the maximum amount of property allowed to avoid federal estate taxes. One trust, usually trust A, is often referred to as the marital deduction trust and the other trust, usually trust B, is often referred to as the credit shelter trust or bypass trust.

Abstract Trust

A condensed version of a trust which includes only key parts such as who are the trustees and successor trustees. An Abstract of Trust is used to establish that a valid trust has been established without disclosing specifics either the trustee or beneficiaries want to keep confidential.

Accumulation Trust

A trust where trust income is retained and not paid out for longer than a year to beneficiaries until certain conditions have been satisfied. These types of trusts are also known as complex trusts.

Ademption

Under a will adaption is the failure of a specific gift of property to take effect because the property is no longer owned by the person at the time of his death.

Administration of an Estate

The distribution of the probate estate of a deceased person. The person who manages the distribution is called the executor or personal representative if there is a will. If there is no will, this person is called the administrator. In many states the level of supervision may vary according to whether the probate procedure is formal (a high level of court supervision) or informal (a low level of court supervision).

Administration of a Trust

The process of handling the affairs of a trust. Typically the administration of a trust is not under the supervision of a court.

Ancillary Probate

A probate proceeding conducted in a state other than the state where the decedent lived and the primary probate occurs.

Annual Exclusion

The amount of property the IRS allows a person to gift to another person during a calendar year before a gift tax is assessed and/ or a gift tax return must be filed. The amount is increased periodically. There is no limit to the number of people you can give gifts to which qualify for the annual exclusion. To qualify for the annual exclusion, the gift must be one that a recipient can enjoy immediately and have full control over.

Annuity

Payment of a fixed sum of money to a specified person, by contract, at regular intervals (usually monthly).

Ante-nuptial Agreement

A contract between two potential marriage partners specifying how the property owned by each prior to marriage and owned individually or jointly during marriage will be divided should the couple divorce. This type of contract is also frequently known as a pre-nuptial agreement.

Ascertainable Standard

An IRS accepted standard which governs the use of trust property and prevents the property from being considered part of the trustee’s property for estate tax purposes. The standard is defined as “health, education, maintenance and support” of the beneficiaries under the trust.

Basis

This is a tax term relating to the valuation of property for determining profit or loss on sale. If you buy a property for $150,000, your tax basis is $150,000. If you later sell it for $250,000, your taxable profit is $100,000. Certain tax provisions such as Internal Revenue Code section 1031 permit tax to be deferred under certain condition.

Beneficiary

An individual, institution, trustee or estate which receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust, other contract, or by some other means such as the intestacy laws of a state in which case the beneficiary is known as an “heir”. A primary beneficiary is a person who will benefit from a will or trust if living at the decedent’s death. A contingent beneficiary is a person who may or may not receive property, depending on the terms of the will or trust and what happens to the primary beneficiaries. For example, a contingent beneficiary may receive nothing unless and until the primary beneficiary dies.

Bequest

A legal term for a will provision leaving personal property to a specified person. (see also Demonstrative Bequest, General Bequest, Specific Bequest)

Bond

An insurance policy used to ensure a person having a position of trust (frequently called a fiduciary) will do their job and not misuse or steal funds they are controlling. The bond guarantees that a certain amount of money will be paid if a party is injured due to improper acts of the person having the position of trust. Thus, if an executor, personal representative, trustee, or guardian, who is bonded, wrongfully deprives a beneficiary of his or her property, the bonding company will replace it, up to the limits of the bond. Bonding companies issue bonds in exchange for premiums averaging 10% of the face amount of the bond. The requirement for a bond is often waived by the maker of a will or grantor of a living trust because of the high cost and usually low risk. Additionally, most states have very strict fiduciary laws.

Bypass Trust

Any trust that created a life estate for a life beneficiary, with the trust principal going to the final beneficiary when the life beneficiary dies. See AB Trust, marital life estate trust, spousal bypass trust, or a marital exemption trust.

By Right of Representation

Common terminology for the Latin term, Per Stirpes. This is the most common way of distributing an estate such that if one of the beneficiaries is dead, his children share equally in his share of the estate distribution. This term is often summarized by the phrase, “if the parent is dead, his children stand in his shoes.”

Charitable Trust

Any trust designed to make a substantial gift to a charity. Most charitable trusts can provide significant income and estate tax savings for the grantor.

Charitable Remainder Trust

A trust used to make large donations of property or money to a charity so the person making the gift or donation can obtain a tax advantage. In a charitable remainder trust, the donor reserves the right to use the trust property during his life or some other specified time period, and when the agreed period is over the property goes to the charity.

Children

By law in most states, one’s children are: (1) biological offspring, (2) children who were legally adopted, (3) children born out of wedlock and (4) children born to the maker of a will after the will is made, but before his or her death. Step-children are not children of the step-parent unless they have been legally adopted.

Codicil

A separate legal document which, after it has been signed and properly witnessed, changes an existing will. An amendment to a will.

Common Law Marriage

In a minority of states, couples may be considered married if they live together for a certain period of time and intend to be husband and wife. In some states all that is required is an intent to be married and the holding out to others that they are married.

Community Property

Several states follow a system of marital property ownership called “community property.” The specifics of how property in a community property state is defined may vary according to that particular state. In general, all property acquired after marriage and before permanent separation is considered to belong to both spouses equally, except for gifts to and inheritances by a spouse. Also, income from community property is community property income. The eight states with such laws are known as community property states. These eight states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington. Puerto Rico also uses the community property system. Additionally, Wisconsin has a modified community property system.

Conservator

Someone appointed by a court to manage the affairs of a mentally incompetent or a minor. A conservator is a person at least twenty-one years of age, resident or non-resident, who is appointed by a court to manage the estate of a protected person.

Conservator

Someone appointed by a court to manage the affairs of a mentally incompetent or a minor. A conservator is a person at least twenty-one years of age, resident or non-resident, who is appointed by a court to manage the estate of a protected person.

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Broomfield, CO 80020