During the development of your estate plan, you’ll most likely come across unfamiliar terms that are confusing or difficult to understand. Of course, your estate planning professional is right at home with these terms and will be glad to answer any questions you have about their meaning.
You also may find it helpful to refer to the glossary below. It contains a number of the most frequently used estate planning terms along with a brief explanation of each.
Administrator
The individual or institution appointed by a court to oversee the settlement of the estate of a person who has died without a will.
Annual Exclusion
The amount of money or property (currently $11,000 for an individual and $22,000 for a married couple) that may be given as a gift to a recipient each year without incurring a gift tax.
Appraisal
The process of evaluating the monetary worth of property that is part of an estate.
Beneficiary
An individual named as the recipient of the income or principal of an estate or trust.
Bequest
Property given as a gift under the terms of a will.
Capital Gains and Losses
For tax purposes, the difference between the purchase price and selling price.
Codicil
An addition or other change to an existing will.
Claim Against an Estate
Refers to a charge against an estate to settle an agreement or an outstanding obligation (as in the case of bills unpaid at the time of death).
Contest of a Will
Legal proceedings to prevent or alter distribution of estate assets as described in a will.
Death Taxes
A general term used to refer to taxes against property or the transfer of assets upon the death of the owner, including all estate and inheritance taxes. Sometimes referred to as estate taxes.
Deduction
For tax purposes, the portion of an estate that does not generate tax (such as marital deduction).
Donee/Donor
The recipient of a gift; the giver of a gift.
Executor
The individual named in a will charged with carrying out the provisions specified in the will. A co-executor serves as executor along with one or more designated individuals.
Fiduciary
An individual or institution responsible for acting in the best interests of another party. A fiduciary is bound by law and duty to put aside personal interests and act in good faith when making decisions for the benefit of another.
Gift Tax Annual Exclusion
The first $11,000 in gifts that an individual can give tax free to another during a calendar year. (See Annual Exclusion)
Grantor
An individual who gives property outright or in a trust.
Guardian
An individual or institution named by a court to manage the property of a person who is judged incapable of handling his or her own affairs.
Heir
One who inherits from the estate of a person who has died.
Intestate
Dying without a will.
Invasion of a Trust
Refers to a distribution of assets made from the principal of a trust.
Irrevocable Trust
A type of trust that cannot be revoked or changed in any way.
Joint Ownership
Also called joint tenancy, this phrase refers to ownership of property by two or more persons, generally with right of survivorship (upon the death of one owner, the surviving owner or owners assume ownership).
Last Will
Literally, the will last executed by an individual, which revokes any former existing wills.
Living Trust
A trust that takes effect while the settlor is still alive.
Living Will
A legal document in which an individual states, in advance of final illness or injury, his or her wishes regarding procedures and equipment designed to extend life.
Power of Appointment
The power given by an individual to another in a will or trust document to determine which persons will receive an interest in his or her estate.
Power of Attorney
A legal document authorizing one individual to act as the agent or "attorney" for another (the "principal"). If the attorney is authorized to act in behalf of another for all matters, he or she has general power of attorney. Authority to act solely regarding specified situations is special power of attorney. If the authority granted extends beyond the disability of the principal, the attorney has durable power of attorney.
Principal
Refers to the assets included in a trust that yield income. In an agency relationship, this word refers to the individual who gives authority to the agent to act on his or her behalf.
Probate
The process through which a will is proved to be valid.
"Prudent Investor" Rule
Legal term that refers to the duty of the fiduciary to invest and manage assets in the best interests of another.
Remainderman
In the case of a trust, this term refers to the individual who will receive the principal of a trust when final distribution takes place.
Revocable Trust
A type of trust that can be terminated by the settlor (the opposite of an irrevocable trust).
Settlor
An individual who establishes a trust in order to transfer property. (See Grantor)
Successor Trustee or Executor
An individual or institution taking the place of a trustee or executor unable to continue the responsibilities designated in the trust agreement or will.
Testamentary Trust
A type of trust that is established under the will of a deceased individual.
Testate
Making and leaving a valid will; an individual who dies without having made a will is said to have died intestate.
Title
Legal ownership of property.
Trust
A legal, fiduciary relationship in which an individual or institution (the trustee) holds legal title to property with the responsibility for keeping or managing this property for the benefit of another person or beneficiary.
Trust Agreement
A legal document that establishes a trust and outlines the rules and guidelines affecting its management and disposition.
Trust Fund
Property held in trust. This term originally applied only to money held in trust, but is frequently used when referring to all property held in trust.
Trustee
The individual or institution with responsibility for management of property placed in trust for the benefit of another individual.
Unified Credit
A federal tax credit that offsets gift- and estate-tax liability.
Will
A legal document expressing the wishes of an individual regarding distribution of his or her property after death.
How to Find out More
With the proper help and guidance, developing your estate plan need not be burdensome or overwhelming. In fact, many individuals with an estate plan in place find reassurance in knowing that their wishes will be observed and family members cared for.
If you're interested in establishing an estate plan for yourself, or just wish additional information, call on us. A Northern Trust estate planning professional will be happy to assist.
The foregoing discussion is general in nature and is intended for informational purposes only. Because the facts and circumstances surrounding each situation differ, you should consult your tax advisor and estate planning professional before making any changes to your estate plan.
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