Glossary for Trusts, Wills and Estate Planning
Administration or trust administration, is the process during which the executor collects and totals all of the decedent’s assets, validates and then pays outstanding debts and claims, and then distributes the residue of the estate according to the will, trust or the state law intestacy rules.
The administrator or trust administrator is an individual or fiduciary who manages the trust or estate and does the administration. If no executor has been appointed or if the named executor is unable or unwilling to serve, the court will appoint one.
Arbitration is the procedure in which a dispute is submitted, by agreement of the parties to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
An Attorney is a lawyer, a person appointed to act for another in business or legal matters. Attorneys often specialize in a specific type of law such as Trust and Estates or taxation.
Attorney in Fact:
An Attorney in Fact is the person named as agent under a power of attorney to handle the financial affairs of another.
A beneficiary is a person who will receive the benefit of property or real property from a trust or estate on behalf of a benefactor or settlor. For example, the beneficiary of a life insurance policy is the person who receives the payment of the amount of insurance after the death of the insured, or one of the beneficiaries of the the estate received the decedents automobile.
A bridge loan is a sum of money lent by a bank to cover an interval between two transactions. In trust and estates, a trust loan or bridge loan may be made to a trust to provide the cash needed for an equal distribution of assets can be made. A bridge loan may be needed when a home is being inherited in a state such as California and the child inheriting the home is requesting a Parent to Child Transfer of property taxes / exclusion from reassessment from the County Assessors Office.
Charitable Lead Trust:
A charitable lead trust is a trust that first distributes a portion of its proceeds to a charity, for which you’ll receive a charitable donation tax deduction equal to those payments. The remainder of the principal is then distributed to the beneficiaries of the trust.
Charitable Remainder Trust:
A charitable remainder trust is a trust you choose to receive an income from the distribution of the non-income-producing assets you placed into the trust. You also receive a charitable donation tax deduction based on the present value of the remainder of the assets designated for the charity. At the end of the term or upon your death, your chosen charity receives the remainder of the assets in the trust.
A codicil is literally means little codex, or a small amount of writing used to add to or change a larger piece of writing. A codicil to a will can change the terms of the original will completely. A codicil to a will generally requires witnesses just like the will.
Community property is a form of ownership that occurs in certain US States, known as community property States. Community property is property acquired during a marriage and is considered by the state to be owned jointly. As of November, 2022, Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, any assets acquired by a spouse throughout their marriage is labeled as community property, regardless of who buys it.
A conservator is an individual or a fiduciary appointed by a court to care for and manage the property of an incapacitated person.
The decedent is the individual who has passed away. In the case of a trust or estate, the person who has passed and left property behind.
A descendant, or descendants are the individual’s children, grandchildren, great grandchildren or relatives created from legal adoption. Descendants are only people who were adopted by or born of the decedent, a spouse, unadopted stepchild, parents, brother or sisters are not considered a descendant.
Estate Planning is the process by which an individual designs a strategy and executes a will, trust or other documents to provide for the administration of assets upon incapacity or death.
Estate tax or estate taxation is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death.
An executor is a person named in a will or appointed by the court to carry out the terms of the will and to administer the decedent’s estate.
A family trust is a trust that is established to benefit an individual’s spouse, children or other family beneficiaries. A Family Trust is a legally binding Estate Planning tool used to financially protect and benefit you and your family. Like other Trusts, a Family Trusts are often intended to avoid probate, delay or reduce taxes and protect assets.
A Fiduciary is an individual or a group designated to manage money or property for beneficiaries. A Fiduciary has a responsibility to exercise the standard of care set forth in the governing document under which the fiduciary acts and state law.
The gift tax is the tax charged on completed lifetime transfers from one individual to or for the benefit of another. The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift or not. The gift tax applies to the transfer by gift of any type of property. You make a gift if you give property, or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift and may be taxed accordingly.
A grantor is a person, including a testator, who creates, or contributes property to, a trust. If more than one person creates or contributes property to a trust, each person is a grantor. The grantor is also sometimes referred to as the settlor, trust maker or trustor.
A grantor trust is a trust over which the grantor retains certain control such that the trust is disregarded for federal and possibly state income tax purposes. 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. A grantor trust is a type of living trust in which the person creating the trust, the grantor, remains the owner of the assets and property in the trust for both income and estate tax purposes. A grantor trust is taxed at the grantor’s personal tax rate, which is usually lower than trust tax rates.
A guardian in the trust and estate, will, or trust sense is an individual or bank or trust company, appointed by a court to act on behalf of a minor or incapacitated person.
An heir is an individual entitled to a distribution of an asset or property interest under applicable state law in the absence of a will.
Intestate refers to a situation when one dies without a valid will and the decedent’s estate is distributed in accordance with a state’s intestacy law.
In relation to trusts, will and estates, inventory refers to a list of the assets of a decedent or trust that is filed with the court.
An irrevocable trust is a trust that cannot be terminated, revoked or modified by the grantor. Grantors may choose to create an irrevocable trust with such limitations to limit estate taxes or to shield assets from creditors.
Joint tenants or joint tenancy is the ownership arrangement in which two or more persons own property, the share of each passing to the other or others on death.
Last Will and Testament:
A last will and testament, is a legal document that provides instructions for what should happen to a person’s assets after death. This term “last will and testament” is commonly used to mean the same thing as a “will”, but to be exact, a last will and testament refers to the most recent version of a will. A will is commonly used to distribute a personal property, real estate, investments or business interests. It may also be used to appoint legal guardians. If a person dies without a will, they are said to be intestate, and state intestacy laws govern the distribution of the property of the person who passed.
A life beneficiary is an individual who receives income or principal from a living trust or life estate for the duration of their life.
A life estate is the interest in property owned by a life beneficiary with the legal right under state law to use the property for their lifetime, after which title fully vests in the remainderman.
A Living Trust is a legal tool for financial planning that allows a person ( the Trustee) to hold another person’s (the Settlor’s) property for the benefit of someone else (the Beneficiary). Unlike a testamentary trust, a Living Trust goes into effect during the settlor’s lifetime.
Per stirpes is a Latin phrase meaning “per branch”. In trusts and estate matters, per stripes is a method for distributing property according to the family tree whereby descendants take the share their deceased ancestor would have taken if the ancestor were living. Each branch of the named person’s family is to receive an equal share of the estate. If all children are living, each child would receive a share, but if a child is not living, that child’s share would be divided equally among the deceased child’s children.
Power of Attorney:
A power of attorney, also sometimes referred to as a letter of attorney, is a written legal document authorizing one person to represent or act on another’s behalf in private affairs, business, or some other legal matter. The person authorizing the other to act is typically referred to as the principal or grantor.
The owner of an estate is sometimes referred to as the principal. Principal may also refer to the property placed into a trust and may include money, real property, investments or possessions.
Probate is the court supervised process of proving the validity of a will and distributing property under the terms of the will or in accordance with a state’s intestacy law in the absence of a will.
Remainder interest is a future interest a person has in an asset. A remainderman can exercise their right to use and hold property in a trust once the trust has be dissolved.
A remainderman is the person who inherits or is entitled to inherit the principle of a trust once it is dissolved.
Residue is the property remaining in an estate after payment of the estate’s debts, taxes, expenses and distributions directed by the will.
A revocable trust is a trust created during lifetime over which the grantor reserves the right to terminate, revoke, modify, or amend. Upon death the revocable trust will become an irrevocable trust.
A settlor is the person who establishes or settles a trust. Sometimes the settlor is also referred to as a trustor or grantor.
Special Needs Trust:
A special needs trust is a trust established for the benefit of a disabled individual. The special needs trust is designed to allow the beneficiary to be eligible for government financial aid by limiting the use of trust assets for purposes other than the beneficiary’s basic care.
Tenancy By the Entirety:
Tenancy by the entirety means that when one spouse dies, the other inherits the deceased spouse’s interest in the tenancy by the entirety and ends up with 100% of the property interest. This occurs automatically, by law and there is no need for probate or take any court action.
Tenancy in common:
Tenancy in common is 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 means relating to or bequeathed or appointed through a will.
A testamentary trust is a type of trust that is created after the grantor dies. The testamentary trust is established in a person’s will to come into operation after the will has been probated and the assets have been distributed to it in accordance with the terms of the will. The only way to execute the provisions laid out in a decedent’s will in California is to enter the document into probate.
The testator is a person who dies leaving a will or testament in place.
A trust is an arrangement whereby property is legally owned and managed by an individual or fiduciary as trustee for the benefit of another who is referred to as a beneficiary, who is the owner of the property.
A trust instrument is a legal document executed by a grantor that contains terms under which the trust property must be managed and distributed. A trust instrument is sometimes also referred to as a trust agreement or a declaration of trust.
A trust loan is a sum of money lent by a bank to a trust. In most cases the money is being lent to an irrevocable trust. A trust loan provide cash to a trust to that improvements can be made to a home in preparation for sale or so that an equal distribution of assets can be made. A trust loan may be needed when a home is being inherited in a state such as California if multiple beneficiaries are involved and the child inheriting the home is requesting a Parent to Child Transfer / exclusion from reassessment from the County Assessors Office.
The trustee is an individual or bank or fiduciary designated to hold and administer trust property. The trustee takes legal ownership of the assets held by a trust and assumes fiduciary responsibility for managing those assets and carrying out the purposes of the trust. The trustee has the duty to act in the best interests of the trust and its beneficiaries and in accordance with the terms of the trust instrument.
A trustor is the person who establishes or settles a trust. Sometimes the trustor is also referred to as a settlor or grantor.
A ward is a person or thing under guard or protection. A minor subject to wardship or a person who by reason of incapacity is under the protection of a court either directly or through a guardian appointed by the court.
A will is a legal document that provides instructions for what should happen to a person’s assets after his or her death. This term “last will and testament” is commonly used to mean the same thing as a “will”, but to be exact, a last will and testament refers to the most recent version of a will. A will is commonly used to distribute a personal property, real estate, investments or business interests. It may also be used to appoint legal guardians. If a person dies without a will, they are said to be intestate, and state intestacy laws govern the distribution of the property of the person who passed.