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ABATEMENT
The situation in which a testator’s estate is inadequate to finance all the bequests under the will. The order of abatement specifies the gifts that will be funded first and those that will abate or fail.
ADOPTION
Statutes regard adopted children as natural born to the adoptive parents, and allow children to inherit from and through their adoptive parents only (and vice versa), with exceptions in the case of step-parent adoptions.
ANNUAL EXCLUSION (OR ANNUAL PER GRANTEE GIFT TAX EXCLUSION)
A gift tax exclusion of $13,000 per donee for gifts made in 2009. The gift must be of a present interest. Direct payments for medical or tuition expenses do not impact or reduce the annual exclusion gifts one can make.
ANCILLARY PROBATE ADMINISTRATION
Probate administration in a jurisdiction other than the decedent’s domicile.
APPORTIONMENT
The method by which a tax liability- typically estate tax – is shared by the beneficiaries of an estate.
ASSET PROTECTION PLANNING
The term “asset protection” has traditionally been used in referring to techniques that offer protection from the claims of personal and business creditors. However, today the term is used to describe a wide array of planning techniques, including those intended to reduce or eliminate income and estate taxes as well as claims from future creditors. These techniques can range from the fairly simple to the very complicated, but are premised on deterring potential creditors from going after you and your heirs, generally by making it difficult or impossible to grab hold of your assets or collect judgments against you. Asset protection techniques must be implemented before the need for it arises.
ASSIGNMENT
Method by which a trustmaker transfers ownership of an asset to a trust.
BENEFICIARY
A person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit upon the death of the owner. A beneficiary can be an individual, company, organization, charity, etc.
BEQUEST
A gift of property made in a will or trust.
BUSINESS EXIT PLANNING
Business Exit Planning is based on one simple premise: At some point in time, every business owner leaves the business, voluntarily or otherwise. Upon exiting a business, clients want to receive the maximum amount of money in order to accomplish personal, financial, income and estate planning objectives. Formulating an exit plan will provide a clear understanding of the ownership transition goals and the various steps, required to achieve them.
It is essential for any successful business continuation or exit plan to consider the factors of value and control. Complete control of a business with no value is worthless; and value in a business you do not control is tenuous. With most successful operating businesses, value and control are typically fixed and determined. In the small closely-held business it is generally accepted that the same individual, or group of individuals, both control the business and own the value. But what happens to control and value upon the death of the business owner? This is the essential question you must address in developing an effective business succession plan.
BUY-SELL AGREEMENT
A contract or provision in an agreement signed by all equity owners under which one or more persons or entities (the partnership or the corporation) agree to buy the interests of the other parties to the agreement, at certain times (usually in lieu of other lifetime sales or transfers and at death), at a stated price and on stated terms.
CHARITABLE LEAD TRUST
A trust established for the benefit of a charitable organization under which the charitable organization receives income from an asset for a set number of years or for the grantor's lifetime or for a term of years. Upon the termination of the trust, the asset reverts to the grantor or to his or her designated heirs. This type of trust can reduce estate taxes and allows the grantor’s heirs to retain control of the assets.
CHARITABLE PLANNING
Charitable estate planning combines philanthropic, financial, estate and tax planning. It is a process that can help you make gifts to causes dear to you, often with dramatic tax and financial rewards.
CHARITABLE REMAINDER TRUST
A trust established for the benefit of a charitable organization under which the grantor or other named beneficiary(ies) receives income from an asset for a set number of years or for the beneficiary(ies) lifetime. Upon the termination of the trust, the asset reverts to the charitable organization. The grantor receives a charitable contribution deduction in the year in which the trust is established, and the assets placed in the trust are exempt from capital gains tax.
COMMUNITY PROPERTY
State laws vary, but generally in community property states all property acquired during marriage is considered community property, and each partner is entitled to one half. This includes debt accumulated. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, Alaska is an elective community property state.
CONSERVATORSHIP
A probate court proceeding in which the judge considers whether a person has become so incapacitated that he/she needs someone to manage their money, business or financial affairs. The Court usually appoints a relative, friend or an attorney as conservator.
CRUMMEY DEMAND POWER (OR TRUST)
A power granted an individual under a trust instrument, whereby the individual can, for a limited period following any gift to the trust (usually thirty through ninety days), withdraw all or some stated portion of the gift. The power is used to make gifts to the trust (present interest gifts) thus qualifying for the annual gift tax exclusion.
DECEDENT
A person who died.
ELECTIVE SHARE
The portion of a decedent’s estate that a surviving spouse can elect to receive if the amount left to the surviving spouse does not meet a minimum threshold amount. The surviving spouse must make the election during the first nine months after the decedent’s death.
ESTATE
An entity consisting of a person’s property and all the rights and responsibilities relating to it. A personal representative administers an estate.
ESTATE (DEATH) TAX
Upon the death of a decedent, federal and some state governments impose taxes on the value of the estate left to others (with limitations). Any death tax levied by a non-federal government (e.g. a state) upon the takers of the property as opposed to the estate as a whole (see estate tax). Colorado does not currently have an inheritance or state estate tax.
FAMILY LIMITED PARTNERSHIP
A limited partnership in which one or more family members own partnership interests.
FIDUCIARY
A person or corporation that occupies a position of trust and accountability. The word characterizes a relationship such as Trustee-Beneficiary, Attorney-Client, Doctor-Patient, Bank-Depositor, Principal-Agent, etc.
FUNDING
The process of transferring ownership or title of a trust maker’s assets into a trust by signing a new real estate deed, changing beneficiary designations, assigning personal property, leases, corporations or partnerships, changing title, changing ownership of financial accounts, etc.
GENERATION-SKIPPING TRANSFER
A transfer to a grandchild or other individual who is at least two generations (or for persons where the transferee is 37.5 years younger than the donor) below that of the Grantor, or to a trust for the benefit of such individuals, upon which a Generation-Skipping Transfer Tax may be imposed.
GIFT
A gratuitous transfer of property to someone else without receiving adequate consideration in return.
GIFT TAXES
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. Donors are allowed to make gifts up to $13,000 per donee in 2009. Couples may make gifts up to $26,000 per donee in 2009. Gifts above the annual exclusion amount reduce the amount of the donor’s applicable exemption amount. Aggregate gifts above $1Million may result in gift taxes. Some states also impose a gift tax. The gift tax exemption is indexed annually for inflation.
GRANTOR
In trust usage, the person who creates a trust (also known as Grantor, settler or trustmaker).
GRAT
The Grantor Retained Annuity Trust (“GRAT”) is a type of irrevocable trust that permits you to make a lifetime gift of assets to an irrevocable trust in exchange for a fixed payment stream for a specified term of years. At the end of the term of years, the balance of the trust property is transferred to the beneficiaries of your choice, typically children or grandchildren. The Grantor Retained Annuity Trust reduces estate taxes by removing assets from those that are counted in your estate for estate tax purposes.
GUARDIANSHIP
A court proceeding in which a judge considers whether a person has become so incapacitated, due to lack of capacity or lack of legal age, that s/he needs a guardian appointed to make all decisions related to a persons wellbeing.
HOLOGRAPHIC WILL
A will entirely in the handwriting of the testator. Without witnesses, holographic wills may be valid and enforceable, but only in some states when other factors are also present.
HEALTH CARE POWER OF ATTORNEY
A grant of power to a person to make or carry out the decision of the signor of the instrument, under terms of a state law, when one is unable to make decisions concerning selection of health care providers, treatment options, pain control and implementation of a Living Will.
HEIR
A person who inherits something from a decedent under the Law of Descent and Distribution where the decedent had no will. Heirs receive notice of probate court actions even if the decedent had a will.
HIPAA
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the U.S. Congress in 1996. Title II of HIPAA, known as the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans, and employers. The Administration Simplification provisions also address the security and privacy of health data. The standards are meant to improve the efficiency and effectiveness of the nation's health care system by encouraging the widespread use of electronic data interchange in the US health care system
IRREVOCABLE TRUSTS
Clients often set up irrevocable trusts, which are another class of inter vivos trusts, for other beneficiaries. In an irrevocable trust all rights to the property transferred to the trust are given up. Irrevocable trusts can be created inter vivos (during life) or testamentary (at death). The basic difference between giving a beneficiary his or her inheritance in trust vs. giving an inheritance or gift outright is that the former provides the beneficiary with competent property management and with protection from himself and others who might misuse or waste the gift. If the transferred property constitutes a taxable gift, the value is added to his gross estate at his death for purposes of determining his estate tax liability. Since outright gifts and irrevocable trusts differ only in terms of control over and protection of the beneficiary, the tax consequences are basically the same.
INTESTATE
The condition of an estate left by a decedent without a valid will. State law then determines the disposition of the property to individuals based on his/her legal relationship to the decedent.
JOINT TENANCY (Joint Tenancy with Right of Survivorship, JTWROS)
Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest.
LIABILITY
Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.
LIVING “INTER VIVOS” TRUST
A revocable trust created by a person during his or her lifetime that provides instructions on how and when trust property should be distributed to beneficiaries during the trustmaker’s lifetime and thereafter. To work properly, the trustee holds legal title to property transferred or funded to the trust. Inter vivos is Latin for "between the living." Generally, a trust in which the creator reserves the right to modify or terminate the trust.
LIVING WILL
A set of signed, written instructions telling friends, relatives, and health care providers what your specific wishes are with respect to using machines or other heroic measures to delay the natural course of a terminal illness. Also sometimes known as an advanced medical directive.
MARITAL DEDUCTION
A provision of the Internal Revenue Code that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also sometimes referred to as the unlimited marital deduction.
MEDICAL DIRECTIVES
These directives pertain to treatment preferences and the designation of an agent decision-maker in the event that a person should become unable to make medical decisions on their own behalf.
OUTRIGHT DISTRIBUTION
A one time disbursement of assets to beneficiaries, with no guidelines regarding how or when the money is to be used. Provides no asset protection and leaves beneficiaries vulnerable to creditors and predators.
PER CAPITA
Per capita at each generation is an alternative way of distribution, where heirs of the same generation will each receive the same amount. The estate is divided into equal shares at the generation closest to the deceased with surviving heirs. The number of shares is equal to the number of original members either surviving or with surviving descendants. Each surviving heir of that generation gets a share. The remainder is then equally divided among the next-generation descendants of the deceased descendants in the same manner.
PERSONAL PROPERTY
“Tangible” personal property means anything moveable that you can touch. “Intangible” personal property refers to financial assets such as stocks, bonds, bank accounts, insurance, etc.
Items of a sentimental nature are often disposed of at death using a "side list" or a "Tangible Personal Property Memorandum"
PERSONAL REPRESENTATIVE
A person or institution appointed by the probate court (nominated in a will, if any) to administer the decedent’s estate. Formerly known as Executor (for a will), or Administrator (without a will).
PER STIRPES
The common law form of representation among descendants whereby each branch of the family receives an equal share of an estate. When the heir in the first generation of a branch predeceased the decedent, the share that would have been given to the heir would be distributed among the heir's issues in equal shares. It may also be known as right of representation distribution, and differs from distribution per capita as members of the same generation may inherit different amounts
PET PLANNING
Planning for the ongoing future care of pets after the owner(s) is/are deceased
POUR-OVER WILL
An alternative Last Will & Testament executed by a testator, in the presence of two witnesses, which sets out that all property owned by the testator should be transferred at his or her death to an existing trust as the principal beneficiary, thus, the probate estate “pours over” into the trust estate.
POWER OF APPOINTMENT
A right held by one person to designate who shall possess or enjoy property that person does not own. For example, a trust may give an income beneficiary (such as a surviving spouse) the right to designate the remainder of the trust assets at the end of the Trust to a specified class of beneficiaries, such as “among my children.” Estate and gift taxation of powers of appointment is governed by I.R.C. §§ 2041 and 2514.
POWER OF ATTORNEY
A grant of power by a Principal to a person (agent) to make or carry out the decisions of the signer of the instrument. The grant of power can be limited or all encompassing, but expires upon the death or disability of the signer. A durable power instrument continues in effect during the one's disability. A general power instrument contains no limitations on the grant of power. A springing power takes effect only upon the happening of an ascertainable event such as the declaration of disability of the Principal.
PRENUPTIAL AGREEMENT
A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements. Often a prenuptial agreement waives the elective share right of a surviving spouse.
PRIVATE FOUNDATION
A nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.
PROBATE
The legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person's property under a valid will. The personal representative, or if necessary a judge, interprets the instructions of the deceased. The Personal Representative is appointed as the legal title holder of the estate, and is responsible for adjudicating the interests of heirs and other parties who may have claims against the estate.
QPRT
A Qualified Personal Residence Trust (“QPRT”) is a type of trust which permits the transfer of a qualified residence to your family during your lifetime and retains the exclusive right to live in the residence, while reducing the size of your estate for estate tax purposes.
REAL PROPERTY
Land, and anything permanently attached to it.
REVOCABLE LIVING TRUST
A revocable trust created by a person during his or her lifetime that provides instructions on how and when trust property should be distributed to beneficiaries during the trustmaker’s lifetime and thereafter. To work properly, the trustee holds legal title to property transferred or funded to the trust. Inter vivos is Latin for "between the living." A trust in which the creator reserves the right to modify or terminate the trust.
RIGHT OF SURVIVORSHIP
A right as to property owned as joint tenants or as tenants by the entirety, whereby one or more joint owner succeeds to the interest of a deceased joint owner.
SCIN
An SCIN (self cancelling installment note) is an installment debt obligation that, by its terms, is extinguished at the death of the seller. It is similar to a private annuity in that an asset is sold to the child on an installment basis. However, with an SCIN, the installments are shorter than the seller's life expectancy and the child usually would pay a "risk premium" in the form of an above-market interest rate to the parent as consideration for the cancellation provision. Generally, nothing will be included in the seller's gross estate, but any deferred gain on the installment obligation will be reported on the seller's estate income tax return
TAXABLE INCOME
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.
TENANCY IN COMMON
A form of co-ownership. Upon the death of a co-owner, his or her interest passes to his or her chosen beneficiaries and not to the surviving co-tenants.
TESTAMENTARY TRUST
A trust established by a will that takes effect upon death.
TRUSTEE
A person or corporation appointed by a grantor to take control of trust property and administer it for the benefit of a beneficiary named by the grantor in the trust instrument. The grantor may also designate himself as the trustee and beneficiary. The trustee has a strict duty of accountability (fiduciary) to the beneficiary.
TRUSTMAKER
The person who creates a trust (also known as a grantor, settler or trustor)
UNIFIED CREDIT
A credit allowed against both the federal estate and gift taxes. To the extent the credit is not used against an individual's lifetime gift tax liabilities, it is available to offset estate tax obligations. The credit in 2009 is $3,500,000.
WILL (LAST WILL & TESTAMENT)
An instrument (testament) executed by a testator, in the presence of two witnesses, which sets out the testator’s instructions for winding up his/her affairs after death. The will has no effect until the testator dies.
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