Glossary of Estate Planning Terms
Agent (Power of Attorney). An Agent, sometimes called an "attorney-in-fact" under a legal and financial power of attorney is a person you have designated to serve as your agent to manage your legal and financial affairs. An Agent may be designated individually, or jointly, or jointly and severally, to act on your behalf presently or, alternatively, only in the event of your incapacity.
Beneficiary. A person designated to receive the income, principal, or proceeds of a trust, estate, financial account, insurance policy, or retirement plan.
Beneficiary Designations. These are contracts between you and some entity, often your employer (for work benefits), an insurance company or a financial institution. These allow you direct payment of the assets held by the entity directly to your named beneficiary, thereby avoiding probate (but not estate taxes).
Charitable Trust. A trust having a charitable organization as a life-time beneficiary (Charitable Lead Trust) or a death beneficiary (Charitable Remainder Trust).
Commissioner of Accounts. Attorneys appointed by the Judges of the various Circuit Courts in the various counties and cities of Virginia, with the authority and responsibility for auditing inventories and accounts filed by executors, administrators and other fiduciaries, reporting their findings to the Court, and enforcing filing requirements, if necessary.
Decedent. The individual who is deceased, whether testate (with a valid Last Will and Testament) with probate assets that may require probate with the Court, or intestate (without a valid Last Will and Testament), with probate assets that require probate.
Executor. See "Personal Representative" below.
Federal Estate Tax. The tax paid to the federal government by the personal representative or trustee of a person’s estate or trust out of the estate or trust assets.
Fiduciary. A person in a position of trust or confidence. The fiduciary is bound by a duty to act in good faith. Some examples of fiduciaries include trustees, executors, personal representatives and agents under powers of attorney.
Future Interest. A property interest which cannot be currently possessed, used or enjoyed.
Gift Tax. Tax on gifts generally paid by the person making the gift rather than the recipient. This tax is rarely paid and only due where the person making the gift exceeds their life time exemption of over 5 million dollars.
Gift Tax Annual Exclusion. The provision in the tax law that exempts from federal gift taxes the first $14,000 (as adjusted for inflation) in present-interest gifts a person gives to each recipient during a year.
Grantor Retained Annuity Trust (GRAT). A Grantor Retained Annuity Trust or GRAT is an estate planning technique that minimizes tax liability existing when intergenerational transfers of estate assets occur. Under these plans, an irrevocable trust is created for a certain term or period of time. If the asset in the trust increases enough, the increase is distributed to the beneficiaries in a tax advantaged way, while the original asset is returned to the Grantor.
Grantor Retained Income Trust (GRIT). A Grantor-retained income trust or GRIT is an irrevocable trust established in a written trust agreement whereby the grantor transfers assets but retains the income from or the use of these assets for a stipulated period of time.
Gross Estate. The total value of an individual’s property for state or federal estate tax purposes.
Guardian (or Conservator). A person legally appointed to manage the rights and/or property of a person incapable of taking care of his or her own affairs. A “guardian ad litem” is appointed by the court to prosecute or defend an action for a minor.
Guardian (For Minor Children). The guardian is the person who will take care of the personal needs and upbringing of minor children or
disabled individuals upon the death of the surviving spouse. The guardian does not need to be the same person as the trustee of any trust created for the benefit of minor children, although it is the normal course of action. You may name different persons to take care of the personal
and financial needs of your children. If you are considering naming spouses as co-guardians, please consider who should care for minor children in the event of the separation or divorce of the couple you are naming and who should serve as guardian in the event of the death of one of those spouses.
Health Care Advance Directive. A comprehensive health care document that incorporates the appointment of an individual, the “Health Care Agent” to make comprehensive health care decisions, and instructions regarding advance health care decisions the signatory would, or would not, want. Can also deal with organ donation, disposition of body, visitation issues, religious concerns concerning health care decisions and the rights of individuals to receive information. In Maryland this is referred to as an “Advance Directive,” while in Virginia it is called an “Advance Medical Directive.”
Health Care Decisions Directive. Can be called by any number of titles or names, these documents allow you to state your wishes regarding what types of medical measures you prefer to have, or have removed or withheld, if you are unable to decide these things for yourself. They often deal with the persistent vegetative state, terminal condition or other end of life situations. This is usually included within a Health Care Advance Directive.
Health Care Power of Attorney. A document that appoints an individual to make health care decisions when the grantor of the power is incapacitated. It may or may not also list advance decisions or other health care intentions. This is usually included within a Health Care Advance Directive, but in some places, such as the District of Columbia, it is a “Durable Power” that includes the information and directions of a Health Care Advance Directive.
Heir. A person entitled to inherit a portion of the estate of a person who has died without a Will.
Interest. Any right in property.
Intestate. Dying without a Will. If you die without Will, your assets will be distributed according to intestacy succession laws of the state in which you live.
Joint Ownership with Rights of Survivorship. This is a common form of asset ownership. This form of ownership has the advantage of avoiding probate at the death of the first joint tenant and therefore allowing for the quick and efficient transfer. However there is no form of “limited” joint ownership, and joint ownership may subject assets to loss through the debts, malfeasance, bankruptcies, divorces and/or lawsuits of additional joint tenants.
Last Will and Testament. A legally executed document which explains how and to whom a person would like his or her property distributed after death.
Letters of Administration or Letters Testamentary. Letters issued to a personal representative by the probate court giving him or her power to affect and transfer the decedent's probate property.
Life Insurance Trust. An irrevocable trust that owns a person’s life insurance policy as its principal asset. Properly created and maintained, the proceeds of the life insurance policy owned by a life insurance trust may not be considered as part of the decedent's gross estate for estate tax purposes. Sometimes called an Irrevocable Life Insurance Trust or "ILIT". More information about life insurance trusts can be found here.
Lifetime QTIP Trust (LQTIP). is an irrevocable trust created by one spouse for the benefit of the other spouse. The Lifetime QTIP Trust is often used to equalize the assets of each spouse, so that they can take advantage of both of their applicable estate tax exemptions no matter who dies first.
Living Trust. Also called a “revocable living trust” and explained below.
Maryland Trust Act. A new act covering Maryland trusts that went into law as of January 1, 2015, but will affect some trusts create prior to that date. The Maryland Trust Act ("MTA") also provides some specific definitions to words, phrases or concepts included in many Maryland trust documents. Some of those definitions can be found here.
Marital Trust. A trust established to hold property for a surviving spouse in A-B trust planning and designed to qualify for the marital deduction. A commonly used marital trust is a qualified terminable interest property trust, or QTIP trust, which requires that all income must be paid to the surviving spouse.
Personal Representative (or Executor or Special Administrator). Someone appointed by a person in a Will or by the Court to carry out the Will’s provisions or the distributions pursuant to statute. A “co-personal representative” acts as personal representative with another or others. A "successor" personal representative takes the place of a personal representative who can no longer hold office.
Power of Appointment. The authority given by one person to another to decide who will receive and enjoy an interest in property. These may be “limited” or “general” and can have significant gift and estate tax consequences.
Power of Attorney. Authorization, by a written instrument, that one person (or entity) may act in another's place as agent or attorney-in-fact with respect to some or all legal and financial matters. The scope of powers and authority given under a particular power of attorney is spelled out in the document itself, and may be limited, or expanded, by statute in some states. Most powers of attorney are created to be “durable” so they do not expire or terminate upon the disability of the person making the power of attorney. However, all power of attorney documents, and powers, terminate upon the death of the person granting the power. The only exception to this is the very rare instance where the power is “coupled with an interest.”
Probate. A state level process that determines, among other things, the validity of a Will (if any), the value of probate assets at the time of death, and the validity of debts or claims against an estate. In probate the Register of Wills or Probate office will oversee accountings, income and disbursements from the estate. More information about Probate can be found here
Probate Court. A court with the power to probate and settle Wills and administer intestate estates. In Maryland this power is given to the Orphan's Court; in DC and Virginia that power resides in divisions of the regular courts.
Probate Estate. Those estate assets which fall within the jurisdiction of the probate court before being transferred to another person. Retirement accounts and life insurance proceeds, for example, are not generally part of the probate estate. Probate assets are assets titled in the name of the decedent, with no beneficiary designation and not jointly owned.
Qualified Personal Residence Trust (QPRT). A Qualified Personal Residence Trust or QPRT is a trust that allows the grantor to remove a personal residence from their taxable estate as a way to reduce its value for gift tax purposes when transferring the property to a beneficiary.
Revocable Living Trust. A trust that goes into effect while the trust creator is still living. It is usually meant to include all property which does not pass by title, beneficiary designation or otherwise, so as to avoid probate. A revocable living trust, in and of itself, does not avoid estate taxes or creditors.
Spousal Lifetime Access Trust (SLAT). A Spousal lifetime access trust (SLAT) is an irrevocable trust benefiting a grantor’s spouse and/or children. Through a SLAT, the grantor reduces the spouse's exposure to estate taxes by taking advantage of the donor’s gift tax exemption.
Tenancy by the Entirety. In most states, spouses can hold property as tenants by the entirety, a form of joint tenancy with rights of survivorship that also affords additional protection for one spouse from the creditors of the other.
Tenants in Common. Tenants in common each own a separate and undivided interest in the same real property or other asset. Upon the death of one tenant, his or her undivided interest passes to his or her heirs or legatees through probate or a trust.
Testator. A person who makes or has made a Will.
Testamentary Trust. A trust established in a Will or Revocable Living Trust, which comes into effect after the testator’s or grantor's death.
Trust. A legal relationship where property is transferred to and managed by a person or institution for the benefit of another person.
Trust Agreement. The document which creates a trust and establishes the rules which control the trust’s management.
Trustee. The person or institution entrusted with the duty of managing property placed in the trust. A “co-trustee” serves as trustee with another. A “contingent trustee” becomes trustee upon the occurrence of a specified future event. A "successor trustee” takes the place of a trustee who can no longer perform his or her duty.
Trust Protector. Where a trust is designed to last for multiple generations, or there are concerns about a trustee's abilities, a trust protector may be designated with specified, limited responsibilities. Trust protectors frequently are given the power to remove and replace trustees and to modify the administrative terms of testamentary and irrevocable trusts to adjust for changes in tax laws and trust administration practices. For a more in-depth review of what a Trust Protector is, and does, see here.
Trustee Distribution Advisor. Other appointed individual(s) serving in a quasi-fiduciary role in which the individual would not have all of powers of a Trustee but could make recommendations or provide direction to the
Trustee with respect to distributions or investments. For example, if you name as Trustee a bank or trust company or an individual who is not intimately knowledgeable of your children's day-to-day circumstances, you may want to designate a distribution advisor to inform the trustee of the child's needs .
Virtual Representation. A mechanism provided in a will or trust, or in some instances by state law, or restricted or governed by state law, to allow a beneficiary to make binding decisions on behalf of another beneficiary who claims or receives property only under or after them.