WA-Probate > Glossary
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ABATEMENT
Decedent's debts, taxes, and other
costs of administration are required to
be paid before any gifts may be distributed. If the
estate contains insufficient assets to pay such debts, taxes, and costs, then the
priority order in which estate assets are used to pay such
expenses is known as "abatement" and, in Washington (RCW
11.10.010), is as follows:
General gifts; and
ADEMPTION
The effective revocation of a specific gift in a
will as a result of it's not
being in the testator's estate at death.
Ademption by Extinction occurs if the gift has been transferred to a third party, eg, by sale.
Ademption by Satisfaction occurs if the gift has been advanced.
ADVANCE DIRECTIVE
See HEALTH CARE DIRECTIVE.
ADJUSTED BASIS
At first blush,
the amount of one's ongoing monetary "long-term investment" in an item of
property for income tax
purposes.
Following the acquisition of an item of property, its
initial (or "cost") basis over time and from time to time is:
A. Increased by costs such as:
Improvements having a useful life of more than a year;
Rehabilitation expenses;
Extension of utility lines to the property;
Impact fees;
Legal fees (such as for defending or perfecting title or for decreasing its property tax assessment);
Local improvements;
Restoration of property following casualty and theft losses; and
Zoning costs; and
B. Decreased by such things as:
Depreciation taken on the property;
Investment credits taken; and
Insurance reimbursements received as a result of casualty or theft loss;
to yield its "adjusted basis." Adjusted basis is important as the income tax resulting from the sale of property will generally depend on its gain on sale = amount realized - adjusted basis. See AMOUNT REALIZED; BASIS; GAIN.
ADMINISTRATION
The
management of a decedent’s estate.
ADMINISTRATOR
A
person appointed by a court to administer the
estate of a decedent and who was
not nominated by the decedent as his/her
personal representative, usually
because the decedent died intestate.
Compare:
ADMINISTRATRIX. Contrast: EXECUTOR.
Ancillary Administrator: An administrator appointed to administer the estate of a decedent in a foreign state. Contrast: DOMICILIARY ADMINISTRATOR.
Administrator of Undistributed Assets (aka Administrator de bonis non): An administrator appointed to replace a personal representative who has not completed the settlement of an estate due to incapacitation, death, or removal by the court.
Administrator With the Will Annexed (aka Administrator cum testamento annexo or as Administrator CTA): An administrator appointed to administer the estate of a decedent who died with a will but without having nominated as his/her personal representative the person appointed by the court.
Special or Temporary Administrator: An administrator appointed to initiate the management of a decedent's estate until the appointment of the personal representative, often appointed to perform some immediate act, such as to open a safe deposit box thought to contain decedent's will or to collect and preserve decedent's assets and dispose of any that are perishable. In Washington, see RCW 11.32.101.
ADMINISTRATRIX
A
female administrator.
ADVANCEMENT
The satisfaction of a testamentary gift prior to the
testator's
death. See
RCW 11.04.041 regarding advancement in Washington.
AFFIDAVIT
A
statement in writing sworn to or affirmed before an official (usually a
notary) who has authority to administer
an oath or affirmation.
AFFINITY
Relationship by marriage. Contrast:
CONSANGUINITY.
AFTER-BORN CHILDREN
Those born to a testator after he/she has executed a will.
AGENT (aka ATTORNEY IN FACT)
The person appointed by, and authorized to act on behalf of, the
principal in a power of
attorney.
ALTERNATE VALUATION
DATE
Estate assets are usually valued as of date of death
for estate tax purposes. The
personal representative may elect,
however, to value all assets in the estate for
estate tax purposes as of six months after date of death,
known as the "alternate valuation date."
ALLOWABLE
DEDUCTIONS
Payments made from the estate that may be used to reduce
decedent's gross estate for
estate tax purposes.
The federal estate tax return (Form 706) lists the
relevant schedules for allowable deductions as follows:
Schedule J: Funeral Expenses & Expenses Incurred in Administering Property Subject to Claims
Schedule K: Debts of the Decedent & Mortgages and Liens
Schedule L: Net Losses During Administration & Expenses Incurred in Administering Property Not Subject to Claims
Schedule M: Bequests etc. to Surviving Spouse (Marital Deduction)
Schedule O: Charitable, Public, and Similar Gifts and Bequests (Charitable Deduction)
Schedule T: Qualified Family-Owned Business Interest Deduction
Total Allowable Deductions = Sum of the Above
AKA
Also known as.
AMOUNT REALIZED
The consideration received upon the
sale of property, ie, its sales price.
See ADJUSTED BASIS; GAIN;
SALE.
ANCESTOR (aka ASCENDANT)
Any person from whom one is descended; an immediate or more
remote parent, eg, a grandparent. An individual related to an
intestate in an ascending lineal line. Contrast:
DESCENDANT.
ANCILLARY ADMINISTRATION
Administration of a decedent’s estate in a
foreign state in which decedent owned
real property at death.
ANNUAL EXCLUSION AMOUNT
See GIFT TAX ANNUAL EXCLUSION
AMOUNT.
ANNUITY
The right
to receive a periodic series of payments, generally either for a
term of years or until the recipient's death.
ANTE-NUPTIAL AGREEMENT
See PRE-NUPTIAL AGREEMENT.
ANTI-LAPSE STATUTE
A state statute that provides for a gift that fails due to
lapse to pass to those
survivors provided in the statute.
APPLICABLE
CREDIT AMOUNT (was known as UNIFIED CREDIT)
The tax credit, currently
$345,800, that is subtracted from a:
Decedent's gross estate tax liability resulting in the net estate tax payable by the estate, or from
Donee's gross gift tax liability resulting in the net gift tax payable by the donor.
The current $345,800 applicable credit amount allows assets valued at up to $1,000,000 to pass estate or gift tax free.
The applicable credit amount is the new name for what used to be called the "unified credit," adopted upon the unification of the estate and gift tax by the Tax Reform Act of 1976. The Economic Growth and Tax Relief Reconciliation Act of 2001, however, changed the estate and gift tax laws, among many other ways, by "freezing" the unified credit for gift tax purposes at its amount applicable for 2002 and 2003, namely, $345,800, while allowing the unified credit for estate tax purposes to continue to increase in time. As a result, the unified credit beginning in 2004 will no longer be "unified," and the IRS changed the name from the "unified credit" to the "applicable credit amount."
APPLICABLE
EXCLUSION AMOUNT (aka ESTATE TAX
EXEMPTION AMOUNT)
The aggregate value
of assets, currently $1,000,000, that may pass estate or
gift tax free --- aggregated over one's life and at one's death, regardless
of the number of total transfers or the number of donees.
As a result of the "un-unification" of the unified credit beginning in 2004, the
applicable exclusion amount for estate tax purposes will increase over time, the
next time being in 2004, to $1,500,000, while the applicable exclusion amount
for
gift tax purposes will remain at its 2003 amount,
$1,000,000.
APPOINT
What a court does to affirm a person's nominee as his/her
fiduciary and
to authorize that person to act as a fiduciary. Compare: NOMINATE.
APPRECIATED PROPERTY
Property whose current fair market value is
greater than its adjusted basis.
Contrast: DEPRECIATED PROPERTY.
ASCERTAINABLE
STANDARD
A limitation placed on the exercise of a power
of appointment such that it will not be considered a
general power of appointment, resulting in any
property that is subject to the
power to be included in its holder's
estate at death for estate tax purposes. See
"HEMS";
LIMITED POWER OF APPOINTMENT.
ASSESSED VALUATION
The value placed upon real property, generally by a
county officer, for property tax
purposes.
ATTESTATION CLAUSE
The will clause in which the witnesses state that the
testator signed the will.
ATTESTED WILL
1.
A written will that is
"witnessed" or, more correctly, "attested."
2. The document commonly considered to be a will.
Some states, eg, Washington, do not require that the "witnesses" or, more correctly, the "attestors," witness the testator's actual signing --- only that they state that they have personal knowledge that the testator was the person who signed the will.
ATTORNEY IN FACT
See AGENT.
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BASIS (aka COST BASIS)
The value assigned to an asset so that upon its eventual
sale, its gain on sale
may be determined for income tax purposes;
gain on sale = amount
realized - (adjusted) basis.
Basis of property depends upon how it is obtained:
1. If by purchase, basis is the cost of purchase plus other amounts paid in its acquisition, such as freight, installation, and testing costs; excise, real estate, and sales taxes; accounting, legal, recording, and title fees; commissions; etc.
2. If in return for services or in a taxable exchange, basis is the fair market value.
3. If in a non-taxable exchange, such as a like-kind exchange, basis is equal to the basis of the property given up in the exchange (ie, its "carry-over basis" --- in other words, the basis of the property given up "carries over" and becomes the basis of the property received in the exchange).
4. If by gift from a donor (ie, lifetime gift) and the fair market value of the property is equal to or greater than the donor's adjusted basis in the property at the time of the gift, the basis in the donee's hands is the donor's adjusted basis (ie, its carry-over basis --- in other words, the donor's basis "carries over" and becomes the donee's basis) increased by any gift tax paid on the gift. If the fair market value of the property is less than the donor's adjusted basis in the property, then the donee's basis in the property will ultimately depend on whether a gain or loss is realized upon any subsequent sale.
5. If by gift from a decedent (ie, as a result of death), basis in the donee's hands is the fair market value as of date of death (or, if decedent's personal representative chose to use the alternative valuation date on decedent's estate tax return, as of six months following date of death). If the fair market value of the property is greater than the decedent's adjusted basis in the property at the time of its valuation, then the basis in the property will be increased ("stepped up" to fair market value) in the donee's hands and will receive what is known as a "step up in basis." A step up in basis, however, will no longer be available for assets received from a decedent dying after 2009 as a result of the recent repeal of the estate tax scheduled to take effect in 2010.
See ADJUSTED BASIS; AMOUNT REALIZED; CARRY-OVER BASIS; GAIN; STEP UP IN BASIS.
BENEFICIARY
A named
donee of a gift. Contrast:
HEIR.
BENEFICIARY DESIGNATION
The document that names a beneficiary of a contract
such as an annuity, life insurance policy, or retirement account.
BEQUEST
A testamentary gift of
personal property, traditionally of other than money. Compare: DEVISE;
LEGACY.
BOND
1. An insurance contract under which the surety agrees to pay, up to the amount of the face value of the policy, for financial loss caused to the policy holder by specified acts or defaults of a third party; or
2. An interest-bearing security evidencing a long-term debt, issued by a government or corporation, sometimes secured by a lien on property.
BUY-SELL AGREEMENT
An agreement between the owners of a business that provides that the shares
owned by any one of them who dies or withdraws from the business shall be sold
to, and will be purchased by, the surviving or remaining co-owners or by the entity itself at
a value or formula previously agreed upon by the parties and specified in the
agreement. Buy-sell agreements are also common between owners and key employees.
BYPASS TRUST
See CREDIT SHELTER TRUST.
BY RIGHT OF REPRESENTATION (aka PER
STIRPES DISTRIBUTION)
A distribution of property that passes such that any
property that would otherwise pass to a predeceased heir
or beneficairy is distributed
instead to his/her then living issue, equally if in the
same generation. Contrast:
PER CAPITA
DISTRIBUTION.
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CAPITAL GAIN
See GAIN.
CARRY-OVER BASIS
See BASIS.
CHARITABLE DEDUCTION
The
income, gift, or
estate tax deduction allowed for a transfer of
property to a qualified
charity.
CLASS GIFT
A gift to all members of a named class, eg, one's
children, one's partners, etc.
1. A law describing the rights of private citizens; or
2. A system of law having its origin in Roman law, as opposed
to common law.
Contrast: COMMON LAW.
CO-ADMINISTRATORS
Two or more administrators jointly appointed by a
court.
CODE/NO CODE
An order entered into a patient's medical record specifying whether or not
to initiate cardiopulmonary resuscitation ("CPR") if the patient is observed to
have his/her heart stopped beating.
CODICIL
A
will that modifies or partially revokes an existing or earlier
will.
COLLATERAL RELATIVES
Those relatives not in a direct line of succession,
eg, brothers, sisters, aunts, uncles, cousins, etc. Relatives who
trace their relationship to an intestate through a
common ancestor but who are not in his/her lineal line of ascent or descent.
COMMON DISASTER
An
incident that results in the death within a short period of time of two or more
individuals (usually husband and wife).
COMMON DISASTER CLAUSE (aka
SIMULTANEOUS DEATH CLAUSE)
A will clause that specifies the order of death of two or more
individuals who
die within a stated short period of time, whether or not in a
common disaster. For Washington, see
RCW 11.05.010 regarding simultaneous death.
1. A law based on a prior court decision; or
2. The system of law originated and developed in England and based on prior court decisions, on the doctrines implicit in those decisions, and on customs and usages rather than codified written law. Contrast: CIVIL LAW.
COMMON LAW STATE (aka
SEPARATE PROPERTY STATE)
The states other than the nine
community property states. In
common law states, property acquired during a
marriage is historically considered to be owned only by the husband during life
and transferable only by the husband at death, subject to the wife's
dower and right of election.
Contrast: COMMUNITY PROPERTY STATE.
COMMUNITY PROPERTY
Property acquired other than by
gift or inheritance by either or
both of a husband and wife during their marriage in a community property state. Contrast: SEPARATE
PROPERTY.
COMMUNITY PROPERTY AGREEMENT
An agreement between spouses that specifies their
community property and provides for its
disposition upon the death of the first of them to die, generally but not
necessarily that all such property will pass to the
survivor of them. A community property agreement is a
will substitute, and
community property that is the subject of a
community property agreement is a nonprobate asset
and passes "outside of probate."
COMMUNITY PROPERTY STATE
One of nine states (Arizona, California, Idaho, Louisiana,
Nevada, New Mexico, Texas, Washington, and Wisconsin) in which all property acquired during
marriage (except by gift or
inheritance) by either or both of the spouses is considered to be owned
equally by them, and with each having the right to transfer his/her one-half
share in that property (the "community") freely at death.
Alaska might also be considered as a community property state, because spouses
there may elect to treat their property as community property. Contrast:
COMMON LAW STATE.
COMPETENT
Legally
qualified to execute a document having legal
significance.
CONSANGUINITY
Relationship by blood. Contrast: AFFINITY.
CONSERVATOR
A
person appointed by a court to protect the interests of a legally disabled
person (a "ward").
In some states (eg, California), such a person is called:
A conservator if the ward is an adult, and
A guardian if the ward is a minor.
In other states, such a person is called:
A conservator only if he/she is appointed to protect the financial and property interests of a ward regardless of the ward's age (in other words, to effectively be a conservator of the estate of the ward), and
A guardian only if he/she is appointed to protect the personal and health interests of a ward regardless of the ward's age (in other words, to effectively be a guardian of the person of the ward).
CONSIDERATION
One of the elements of a legally enforceable contract or agreement; the exchange
of values by the parties to the contract. Consideration may be money, promises,
property, etc.
CONTINGENT
BENEFICIARY
A secondary beneficiary
who may receive a gift if its primary
beneficiary fails to meet all the requirements
placed on its receipt, eg, survive the donor by
thirty days. Contrast: PRIMARY BENEFICIARY.
CONTINGENT INTEREST
An interest in property that
depends on an future event that may or may not happen or a present event that
may or not stop happening. Contrast:
VESTED.
CORPORATE FIDUCIARY
A bank or trust company that serves as a fiduciary.
CORPUS (aka PRINCIPAL)
The assets of a fund, from which income is derived.
CORPUS OF A TRUST
The assets held by a trust, from which income is derived.
COSTS OF ADMINISTRATION
The actual costs of administering an
estate (as opposed to costs of paying the debts of
decedent), eg, filing fees, appraiser fees, sales commissions,
storage expenses, delivery charges, and the
personal representative's commissions and his/her attorney's fees.
CO-TENANT
A tenant of jointly held
property.
CO-TRUSTEE
A joint
trustee. It is often useful to have more than one
trustee, so that some duties such as investment of estate assets can
be handled by one and other duties, such as determination of the amount of discretionary distributions, may be made by the other.
CREDIT SHELTER TRUST
(aka BYPASS TRUST
or as EXEMPTION TRUST or as "B" TRUST IN "A/B TRUST" PLANS)
A trust that:
Is provided in the will or living trust of the first to die of a married couple,
At whose death will be funded with the maximum amount of property that can pass estate tax free (the "applicable exclusion amount," currently, $1,000,000) in that spouse's estate, and
Also passes estate tax free at the later death of the surviving spouse.
See DISCLAIMER TRUST; MARITAL DEDUCTION GIFT; MARITAL TRUST.
CROSS PURCHASE BUY-SELL AGREEMENT
A buy-sell agreement in which the
surviving or remaining owners (rather than the business itself) agree to buy the deceased or
departing owner's business interests.
CRUMMEY TRUST
A trust in which its beneficiary has a non-cumulative
power to withdraw a specified amount of principal,
usually limited to the gift tax
annual exclusion amount, only during a limited period of time each year,
usually no more than a week or two following the donor's transfer of the
gift to
the trust.
In order to qualify for the gift tax
annual exclusion amount, a gift has to be of a
present interest, so assets transferred
to a trust for the benefit of another usually fail to qualify for the
gift tax annual exclusion amount
and are taxable. In order to qualify an asset transferred to a
trust for another's benefit for the
gift tax annual exclusion amount, what Mr. Crummy (the taxpayer whose case
established the use of trusts that now bear his name) did
was to provide that his beneficiary have the power to
withdraw, for only a short period of time after its making, any asset that he transferred to the trust
for the beneficiary's benefit.
The beneficiary must then elect:
To exercise his/her power of withdrawal, in which case the donor's annual gift program, at least as regards that beneficiary, will likely stop; or
To do nothing, allowing his/her power of withdrawal to lapse, in which case the donor's annual gift program will likely continue for years to come.
CURTESY
A surviving husband’s right in separate
property states to use
property, usually
all of the real property, of his deceased wife for
the rest of his life so long as there were children of the marriage.
Dower and curtesy have been abolished in Washington.
RCW 11.04.060 Compare: DOWER.
CUSTODIAN
A person
named by a donor or
personal representative to hold and manage property on
behalf of a minor, generally under a
statute (eg, the
Uniform Transfers to Minors Act) of
the donor's or representative's
resident state. A custodianship is
similar to a trust for a minor
beneficiary, although a custodianship, as specified
by the law in most states, ends when the
minor attains the age of majority, while a trust
continues according to its terms.
CY PRES DOCTRINE
A historic equitable
doctrine that provides that upon the failure of a charitable gift
(eg, a gift to a non-existent charity, such as the "Salvation Navy"
or the "Untied Way"), the
court may
substitute an appropriate charity or charitable purpose that most closely
approximates the testator's intention.
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DEAD PERSON STATUTE
A historic rule of evidence, still valid in many states, that
prohibits any interested person from testifying concerning conversations or
transactions with a decedent if the testimony could affect his or her interest.
The rule is founded on the principle that it is against public policy to allow
an interested witness to testify as to such matters when such testimony, if
untrue, cannot be contradicted.
DEATH TAX
An estate tax
or inheritance tax.
DECEDENT
An individual
who has died.
DEDUCTION
A
legislatively-granted privilege to subtract from a taxpayer's income or the
value of his/her gift or estate, a certain amount specified under the
income,
gift, or estate tax
law.
DEMONSTRATIVE GIFT
A general gift that is designated to be made from a
particular fund in the estate. As a
general gift, if the subject property is not part of
the estate, the
personal representative is required to use other assets of the
estate to acquire it so the gift can
be made. For example, "I give 100 shares of Microsoft stock from my
account at Merrill Lynch to the United Way" is a demonstrative gift and is
required to be made regardless of either the account's or the
estate's ownership of Microsoft stock at decedent's
death. See GENERAL GIFT. Contrast:
SPECIFIC GIFT.
DEPRECIATED
PROPERTY
Property whose current fair market value is
less than its adjusted basis. Contrast: APPRECIATED
PROPERTY.
DESCENDANT (aka, collectively, ISSUE)
A person descended from another; an immediate or more remote offspring,
eg, a child or grandchild. An individual related to an
intestate in a descending lineal line. Contrast:
ANCESTOR.
DESCENT
Succession to real property.
DEVISE
A testamentary gift of real property.
DEVISEE
The recipient of a devise. Compare:
LEGATEE.
DIRECTIVE TO PHYSICIANS
See HEALTH CARE DIRECTIVE.
DISCLAIMER (aka RENUNCIATION)
The renunciation
of a gift of either property, an
interest in property, or a right by the donee
of the gift before or upon (but not after) its transfer to
the donee.
Gifts
that have been accepted cannot be disclaimed or renounced, a critical
consideration for estate or gift tax purposes,
as the disclaimer of a
gift is not
considered a taxable event, while the acceptance of a gift and
its
return to its donor or its transfer to
a third party would be considered to be two successive taxable events.
DISCLAIMER TRUST
A credit shelter trust provided in a
decedent's will or living trust as the contingent
beneficiary of the applicable exclusion
amount and with its primary beneficiary being the surviving spouse, who can then elect:
To keep all or part of decedent's gift of the applicable exclusion amount, with the understanding that it will be subject to estate tax at the surviving spouse's later death, or
To disclaim all or a part of the gift, in which case, the disclaimed assets will pass to decedent's contingent beneficiary, his/her credit shelter trust, which won't be subject to estate tax at the surviving spouse's later death.
DISCRETIONARY TRUST
(aka Sprinkling
trust)
A
trust that allows its trustee to pay
as much
trust income or principal or both to the
beneficiary as the trustee sees fit or according to
more defined terms specified in the trust (eg, for his/her
health,
education, maintenance, and support).
DISINHERITANCE CLAUSE
A will clause
providing that the testator specifically intends not to
provide for a present or future spouse or a present or after-born
child who would otherwise be an heir at his/her death.
DISTRIBUTION
Succession to personal property.
DISTRIBUTEE
See NEXT OF KIN.
DNR
An abbreviation for "Do Not Resuscitate." The same as a "No Code"
order. See CODE/NO CODE.
DOMICILE
See
RESIDENCE.
DOMICILIARY ADMINISTRATOR
The
administrator of a decedent’s
estate in decedent's
resident state.
DONEE
The recipient of
a gift.
DONOR
A person who makes
a gift, generally during his/her lifetime.
DOWER
A surviving wife’s right in common law states to use
property, usually
one-third of the real property, of her deceased husband
for the rest of her life. Dower and curtesy have been abolished in
Washington.
RCW 11.04.060 Contrast:
CURTESY.
DURABLE POWER OF
ATTORNEY
A power of attorney such that the
agent's authority survives any loss of disability
by the principal after its grant or execution.
DURABLE POWER OF
ATTORNEY FOR ASSETS (aka FINANCIAL DURABLE POWER OF ATTORNEY)
A durable power of attorney that
grants to the agent decision-making powers related to the
principal's financial, property, and estate planning
matters.
DURABLE POWER OF
ATTORNEY FOR HEALTH CARE
A durable power of attorney that
grants to the agent decision-making powers related to the
principal's health care. These powers generally include the ability to make
informed consent to health care decisions, to receive and inspect medical
records, to have the principal moved or discharged, etc.
DURESS
The use of
physical force on a testator to
make a will, thus making it invalid. See
undue influence.
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ENCUMBRANCE
A lien or claim, such as a mortgage, on
property.
EQUITABLE INTEREST
The interest held by a
beneficiary
of a trust, ie, the right to use or receive
property held by the trust
according to its terms.
ESCHEAT
The transfer of property from a
decedent's estate to the state due to
decedent's having no known beneficiaries
or
heirs. For Washington, see
RCW 11.08.140 regarding escheat.
ESTATE
The
aggregate of all property and
interests in property owned by an individual.
ESTATE ADMINISTRATION
The collection and management of an individual's property, the payment of
his/her debts, the determination and settlement of any taxes due, and the
distribution of his/her assets following his/her death.
ESTATE FREEZE
A transaction in which a senior family member transfers property with
substantial appreciation potential to younger family members at insignificant
tax cost and retains an interest in the property, generally with substantial
control power but with little potential for appreciation.
ESTATE OR GIFT TAX
A tax levied on any property or
interest in property
transferred to another without consideration.
ESTATE PLAN
A plan that provides the legal mechanism for:
Transferring property upon death in a way that recognizes one's wishes and the needs of one's survivors;
Minimizing any taxes that may be imposed on that transfer;
Planning for the handling of affairs in case of disability; and
Considering the deeply personal medical choices to be made as life nears its end.
ESTATE TAX
A tax levied on any property
or interest in property held by a decedent at death.
ESTATE TAX
EXEMPTION AMOUNT
See APPLICABLE EXCLUSION AMOUNT.
EXECUTOR
A person
named in a will to administer the
testator's estate upon his/her death. Compare:
EXECUTRIX. Contrast:
ADMINISTRATOR.
EXEMPTION TRUST
See BYPASS TRUST.
EXONERATION
The satisfaction of all
indebtedness on a specific gift prior to its transfer to its
beneficiary.
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FAIR MARKET VALUE
The price at which a willing buyer would buy, and a willing seller would sell,
an item or a collection of property, neither being under any compulsion to buy
or sell and both having reasonable knowledge of relevant facts.
FAMILY PARTNERSHIP
A partnership in which family members act as the partners, generally
splitting partnership income among them and allocating some business income to
lower income tax brackets.
FAMILY POT TRUST (aka POT TRUST)
A
trust that allows its trustee to pay
as much
trust income or principal or both to
one or more of a class of beneficiaries (not necessarily equally) as the
trustee sees fit or according to
more defined terms specified in the trust (eg, for his/her
health,
education, maintenance, and support).
FIDUCIARY
A person
responsible for taking certain actions on behalf of another, eg, the
agent of a principal, the
conservator or guardian of a
ward, the personal
representative of a decedent, and the
trustee of a trustor.
FIVE AND FIVE POWER
An express IRS exception to the general power of appointment rules.
If provided
in the trust, a trust
beneficiary may have the power to withdraw annually up to
the greater of $5,000 or five percent of the trust principal without that
power's being considered a general power of appointment and causing all of the
trust principal to be included in his/her
estate at death for estate tax
purposes.
"FLOWER" BONDS
Certain U.S. bonds that may be redeemed at face value in payment of
estate tax. They are known as "flower" bonds, as they are
usually available for purchase on the secondary market at a substantial discount,
and their value can "flower" appreciably if they are used to pay
estate tax.
FOREIGN STATE
A state other than decedent's
resident state.
1. As a noun: A sum of money or other assets set aside for a particular purpose.
2. As a verb: To transfer assets from one owner or account to another, eg, from a trustor to a trustee following the creation of a living trust or from a living trust to a marital trust within the living trust upon the trustor's death.
FUTURE INTEREST
An interest in property that will come into
being at some future point in time, eg, at some specified date or upon
the occurrence or non-occurrence of some event, such as upon the death of
someone now living.
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GAIN (aka CAPITAL GAIN)
The "profit" realized upon the sale of property for
income tax purposes, generally equal in amount to the
amount realized upon sale
less the
adjusted basis of the property
sold. See ADJUSTED BASIS;
AMOUNT REALIZED; BASIS.
GENERAL GIFT
A testamentary gift that is required to be made
regardless of whether the property is part of decedent's
estate. If the subject property is not part of the
estate, the personal
representative is required to use other assets of the
estate to acquire it so the gift can be made. For
example, "I give 100 shares of Microsoft stock to the United Way" is a general
gift and is required to be made regardless of the estate's
ownership of Microsoft stock at decedent's death.
Contrast: SPECIFIC GIFT.
GENERAL POWER OF
APPOINTMENT
A right held by one person to dispose of another's property
without any limitation as to its recipient, specifically, that the
holder may
exercise the right in his/her favor. Any property subject to a
general power of appointment is includible in the
estate of its
holder for estate tax purposes,
and the exercise (or release, other than by disclaimer) of any such power constitutes a gift for
gift tax purposes. Contrast:
LIMITED POWER OF APPOINTMENT.
GENERATION SKIPPING TRANSFER
A transfer of property, whether during life or at death and whether
outright or in
trust, to an individual (eg, a grandchild) who is two or more generations
younger than the donor.
GENERATION SKIPPING TRANSFER TAX
("GST TAX")
A
tax (currently 50%) levied on all generation skipping transfers to the extent that the
cumulative value of
all such
transfers exceeds the
generation skipping transfer tax exemption amount, currently $1,100,000.
Decedent's generation skipping transfer tax information
is reported on Schedule R:
Generation-Skipping Transfer Tax of decedent's federal
estate tax return (Form 706).
GENERATION
SKIPPING TRANSFER TAX EXEMPTION
The cumulative value
of all generation skipping transfers, currently $1,100,000, that may pass
generation skipping
transfer tax free --- aggregated over one's life and at one's death, regardless
of the number of transfers or donees.
The exemption will increase next in 2004, to $1,500,000.
GENERATION SKIPPING TRUST
Any trust having a beneficiary
who is two or more generations younger than the trustor.
GIFT
A voluntary
transfer of property from one person (the "donor") to another (the "donee")
without full consideration. A gift
also arises in a transaction in which the donee does pay
some
consideration to the donor,
although in an amount both parties agree to be
less than the property's fair market value.
In such a transaction, known as "bargain sale," the amount of the
gift
equals the property's fair market value less the
consideration paid. Contrast: SALE.
GIFT SPLITTING
The ability of one married person to use his/her spouse's
gift tax annual exclusion amount
in order to effectively double the amount of a tax-free gift that may be made to
a donee in any particular calendar year. Gift
splitting is especially useful if one spouse has substantial assets, and the
other spouse has few, so that the spouse having greater capability of making
gifts is able to use the gift tax
annual exclusion amount of the other spouse in order to make twice the
amount of tax-free gifts that he/she would otherwise be able to make.
GIFT TAX
A tax
levied on the transfer of property by a
donor during his/her lifetime.
Contrast: ESTATE TAX.
GIFT TAX ANNUAL EXCLUSION AMOUNT
The maximum amount of a gift
(of a present interest) that can be made to any
donee annually without
incurring any gift tax liability, currently, $11,000.
There is no limit to the number of such gifts that can be made to different
donees, and spouses
may combine their gifts to a single donee. Consequently in one calendar
year, a married couple who has two adult children, each of whom is married and
has two children of their own, could give $22,000 to each child, spouse, and
grandchild, for a total of 8 X $22,000 = $176,000 of annual tax-free gifts.
In addition, any payment of any amount on behalf of any donee for school tuition or medical expenses is completely exempt from gift tax as long as the payment is made directly to the school, doctor, hospital, medical facility, etc. and not to the donee.
Lastly, if a donor desires to take advantage of the gift tax annual exclusion amount but is reluctant to make an outright gift to a donee, then other alternates are available, such as a gift to a crummey trust (named for the taxpayer whose tax case validated its use). See CRUMMEY TRUST.
GRANTOR
1. The transferor of real property, or
2. A TRUSTOR.
GROSS ESTATE
All
property and interests in property held by a
decedent at death or otherwise
imputed to the decedent under the estate tax law. Contrast:
TAXABLE ESTATE.
A decedent's gross estate is inventoried in the relevant schedules of
his/her federal estate tax return (Form 706) as
follows:
A: Real Estate
B: Stocks and Bonds
C: Mortgages, Notes, and Cash
D: Insurance on the Decedent's Life
E: Jointly Owned Property
F: Other Miscellaneous Property
G: Transfers During Decedent's Life
I: Annuities
Total Gross Estate = Sum of the Above
GROSS ESTATE TAX
The estate tax calculated on the
taxable estate, before the application of the
applicable credit amount and other credits.
GUARDIAN
A person appointed by a court upon its finding of disability of another (the "ward")
and who
is granted the legal authority and who assumes the legal responsibility to care
for the ward. If the disability is personal, ie, it goes to the
ward's
inability to provide for his/her food, shelter, and health care, the
appointment
is of a guardian of the person. If the disability is financial, ie, it
goes to the ward's inability to provide for the management of his/her
property
or to resist fraud or undue influence in such management, the
appointment is of
a guardian of the estate. If the disability goes to both, the
appointment
is of a guardian of the person and estate.
In some states, eg, California, a guardian is the title of the person appointed only for a minor, in which case the person appointed to care for a disabled person who has attained the age of majority is known as a conservator. Also, in some states, eg, California, a guardian or conservator may be appointed who has only limited duties that the court specifically finds are needed for the care of the ward (eg, housing or health care or management of a specific asset), in which case the appointee is known as a limited guardian or conservator.
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HEALTH CARE
DIRECTIVE
A document that contains a directive relating to the health care of the
individual making the directive and that is to take effect when that individual
is no longer able to make decisions about his/her own health care. It
generally often:
Specifies medical treatment the individual either desires to receive or refuses to receive, and
Includes the appointment of another individual to make such decisions for the individual making the directive when he/she is unable to make such decisions for him/herself.
Compare: DURABLE POWER OF ATTORNEY FOR HEALTH CARE.
HEIR APPARENT
A person who would inherit from a now living ancestor
if that ancestor were now to die.
HEIRS
Historically,
the class of persons entitled to take or share, in whole or in part, any
real
property of an intestate
decedent, now generally broadened to include all the
property of an intestate
decedent. Contrast: NEXT
OF KIN.
'HEMS"
The four express
ascertainable standards --- Health, Education,
Maintenance, and Support --- provided by the Internal Revenue Service.
If a holder of a
power of appointment may only exercise the
power subject to any one
or more of these four specific standards and no others (eg, specifically
not any of "comfort" or "welfare" or "happiness"), then the power will be
considered to be a limited power of
appointment, and the assets subject to the power will not being included in the holder's estate
for estate tax purposes.
The use of specific words that may or may not define an ascertainable standard has resulted in much litigation. For example, the inclusion of one word, "comfort," in a trust cost one estate over $700,000 in unnecessary estate tax. Estate of Norman H. Vissering, 96 T.C. 749 (1991). The trust could even have said "comfortable" (as in "comfortable support" --- just not "comfort" alone) and that would have been OK.
HOLOGRAPHIC WILL
A will that is written entirely in the
testator’s own handwriting,
and that is not witnessed.
HOLDER
A person entitled to exercise a right, such as a
power of appointment.
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INCIDENT OF OWNERSHIP
A right regarding a life insurance policy, eg, to change its
beneficiaries,
such that if it is held within three years of death, the ownership of the policy is imputed to the holder
of that right and its proceeds are included in the holder's
estate for
estate tax purposes.
1. Receipt of property, generally; or, more specifically,
2. Money or other property received in exchange for labor, services, the use of another's property, or upon the sale or exchange of property.
INCOME TAX
A tax levied on the receipt of property for
consideration. Contrast: GIFT TAX.
INCOME BENEFICIARY
A beneficiary of a trust who is entitled to
trust income according to
the trust's terms (eg, all, only so much as is needed for support, or
only so much as the trustee determines to be in the
beneficiary's best
interests).
INCOME IN RESPECT OF A DECEDENT (aka IRD)
Income a decedent earned but not paid before death. IRD is included in
the gross income of its survivor recipient.
INCORPORATION BY REFERENCE
Making one document become part of another document by referring to the former
in the latter in such a manner that it is apparent that the former document
becomes part of the latter document as if it were fully set forth in it.
See
RCW 11.12.255 for the requirements for incorporation by reference in
Washington.
INHERITANCE
1.
For probate purposes: Receipt of property from an intestate
decedent, by right of succession
rather than by will.
2. For community property characterization or estate tax purposes: Receipt of property simply as a result of death.
INHERITANCE TAX
A
tax levied on the right to receive property from a
decedent. Contrast: ESTATE TAX.
INSTALLMENT SALE
A sale in which the seller receives the sales proceeds, and recognizes any
gain for income tax purposes, during two or more taxable years.
INSURANCE TRUST
A trust, generally irrevocable, whose assets consist entirely or in large part
of life insurance
contracts or proceeds.
INTANGIBLE PROPERTY
Property lacking physical substance, eg, notes representing indebtedness
or shares of stock representing corporate ownership.
INTEREST IN
PROPERTY
A share in or a right to
property, whether vested or
contingent, personal
or real, tangible
or intangible,
present or future,
legal or equitable. A right that the
law will protect against infringement by others.
IN TERROREM CLAUSE
See NO CONTEST CLAUSE.
INTER-VIVOS
Literally, "during life," denoting that the action was taken
during the actor's lifetime.
INTER-VIVOS TRUST
See LIVING TRUST
INTESTATE
Literally, "without a will," denoting that the
decedent died
without having made a valid will. Also, a
decedent who has no will.
INVASION OF TRUST
A
withdrawal by a beneficiary or all or a portion of the
trust principal according to the
trust's terms.
IRREVOCABLE GIFT
A gift that cannot be modified or revoked after it is
made, eg,
resulting in the return of the property to the donor.
IRREVOCABLE TRUST
A trust that cannot be modified or
revoked after its creation, eg, resulting in the return of its assets to the
trustor.
IRREVOCABLE LIFE INSURANCE TRUST
("ILIT")
An
irrevocable trust:
Designed to hold one or more policies of life insurance on trustor's life, and
Shelter the proceeds of the policies from estate tax:
At trustor's death and, if married at death,
At the later death of trustor's surviving spouse.
Policies may be transferred to the trust directly, or funds may be transferred sufficient for the trust itself to purchase the policies.
ISSUE
The class of individuals
descending from a common ancestor, ie, children, grandchildren,
great-grandchildren, etc. Compare: DESCENDANT.
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JOINT AND SURVIVOR
The right held by two or more individuals to receive property during a time in which
any of them is alive.
JOINT AND SURVIVOR INSURANCE (aka
SECOND-TO-DIE INSURANCE)
A life insurance policy:
On two lives, usually husband and wife, and
That pays its proceeds on the death of the second spouse, regardless of order.
This type of policy is an ideal candidate for the source of funds to pay estate taxes at the second death and as a policy to be held by a married couple's irrevocable life insurance trust.
JOINTLY HELD
PROPERTY
Property that is concurrently owned by more than one person. All co-owners
have an equal right to use the property, and no co-owner
can exclude another co-owner from the property.
Each owner's fractional interest in the property
and the results of his/her attempt to transfer that interest, however, will
depend on the form in which the jointly held property is held. See
TENANCY BY THE ENTIRETY;
TENANCY IN COMMON;
JOINT TENANCY;
UNDIVIDED INTEREST.
JOINT TENANCY
A form of ownership of jointly held property
such that:
All co-owners have an equal right to use the property (as is true of all jointly held property in general); and
All co-owners also have an equal ownership interest in the property; but
Upon the death of any co-owner, his/her interest in the property passes to the surviving co-owners and ultimately to the last of them to survive (ie, "last one takes all"); and
Any attempt to transfer the property during life generally will result in the joint tenancy's being converted as a matter of law to a tenancy in common.
See: UNDIVIDED INTEREST. Compare: TENANCY BY THE ENTIRETY. Contrast: TENANCY IN COMMON.
JOINT WILL
A single will made by two of more
testators covering the passage
of property of each testator at his/her respective death, resulting in the same
will being offered for probate in more than one proceeding.
JURISDICTION
The power, right, or authority of a Court to interpret, apply, and declare
the law, eg, by rendering a decision.
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LAPSE
The effective revocation of a gift in
a will as a result of its beneficiary's having predeceased the relevant survival
period or the testator's having outlived the
beneficiary. A lapsed
bequest, devise, or legacy will
pass to its contingent
beneficiary so long as one is provided and has survived
the relevant survival period, and if not, to the residuary
estate. See
RCW 11.12.120 regarding lapse in Washington.
LAW
A rule established by a governing authority to institute and maintain orderly
coexistence.
LEGACY
A testamentary gift of
personal property, traditionally of money.
Compare: BEQUEST; DEVISE.
LEGAL INTEREST
The
interest held by a
trustee of a trust, ie, the right to hold,
manage, administer, and distribute property held by the
trust.
LEGATEE
The recipient of either a bequest or a legacy.
[There is no such creature as a "bequestee" or bequeethee." All recipients
of personal property under a
will are called "legatees."] Compare: DEVISEE.
LETTER OF INSTRUCTIONS
A document that provides specific, detailed, personal
instructions regarding any of the following that its maker considers relevant:
A list of one's professional advisors;
A list of one's relatives;
One's preferences and arrangements regarding organ donation, autopsy, funeral, and burial;
The location of one's safe deposit box and any other storage facility;
A list of one's major current assets;
A list of major current debts and other liabilities;
The location of one's recent tax returns;
The location of one's bills received, records of payment, and cancelled checks;
A list of one's legal documents;
A description of any other relevant circumstance; and
One's desired disposition of tangible personal property to the extent not provided in a will or living trust.
Regarding one's tangible personal property, many states have statutes providing for the disposition at death of some types or all of an individual's tangible personal property (generally not including property used in a trade or business) by a writing, specifying the item and its intended beneficiary and signed and dated by its maker, that does not have to be executed with the formality required of a will. In some states (eg, Washington, see RCW 11.12.260), these informal writings are binding as regards the disposition of the specified property so long as it is not specifically given in one's will and the will refers to the writing. In other states, these writings are discretionary with one's personal representative.
LETTERS OF
ADMINISTRATION
A certificate of authority granted by a probate court stating that the person named has been appointed as
administrator
of an intestate decedent's
estate and authorizing that person to administer the
estate. See:
ADMINISTRATOR.
LETTERS OF
ADMINISTRATION WITH WILL ANNEXED
A certificate of authority granted by a probate court stating that the person named has been appointed as
administrator
of an testate decedent's
estate (but was not nominated as
executor in the will) and authorizing that person to administer the
estate according to the terms of
the will. See:
ADMINISTRATOR.
LETTERS TESTAMENTARY
A certificate of authority granted by a probate court stating that the person named has been appointed as
executor of an
testate decedent's
will and authorizing that person to administer the
estate according to the terms
of the will. See:
ADMINISTRATOR.
LIEN
An interest held by a
creditor in property of a debtor as security for a
loan. Upon the debtor's default on the loan, the creditor/lien-holder may
take, hold, or sell the property as payment.
LIFE ESTATE
A present interest in
property of a duration equal to a specified individual's lifetime, usually
of the individual who holds the present interest;
if measured by the lifetime of a different individual, it is called a Life
Estate Pur Autre Vie (literally, a life estate "by another's life"). If
the interest is in trust, it is called a Life Interest.
Contrast: REMAINDER.
LIFE TENANT
An individual who holds (or may in the future hold) a
life estate in property; if the interest is in
trust, the individual is known as a Life Beneficiary.
For example, if a husband at death left his estate in
trust for his wife for her life and upon her death to his
children, the husband would be the grantor or
trustor, his wife would hold a
life interest and be the life beneficiary, and
his children would hold a remainder interest and be the
remainder beneficiaries.
Contrast: REMAINDERMAN.
LIMITED POWER OF APPOINTMENT (aka
SPECIAL POWER OF APPOINTMENT)
A power of appointment whose exercise is limited by an ascertainable standard relating to the
health, education,
maintenance, or support (and expressly not the comfort, welfare, or
happiness) of the decedent. Another way to shelter
a power of appointment from its being
considered a general power is for it
to be held jointly with its donor or any other
person having an adverse interest in the
property. Contrast:
GENERAL POWER OF APPOINTMENT.
LIVING TRUST (aka INTER-VIVOS TRUST)
A trust created during the lifetime of its
trustor.
LIVING WILL
See HEALTH CARE DIRECTIVE.
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MARITAL DEDUCTION
(aka UNLIMITED MARITAL DEDUCTION)
The
federal estate and gift tax
deduction that allows
qualifying gifts, at death or during life, to one's
U.S.-citizen spouse to pass tax free.
MARITAL DEDUCTION GIFT
A
gift to one's U.S.-citizen spouse, at death or during life, that
qualifies for the federal estate or gift tax
marital deduction and does not result in the imposition of federal
estate or gift tax. Note that it is
possible to make a gift to one's U.S.-citizen spouse that
does not qualify for the federal estate or gift tax
marital deduction; one example of such a non-qualifying gift
would be a gift in trust such that the
spouse was entitled to receive as much of the trust
income (or principal) as trustee
determined.
MARITAL TRUST (aka "A"
TRUST IN "A/B TRUST" PLANS)
The likely recipient of a marital
deduction gift for a decedent married at death who
desires that it not be made outright. The marital
trust is the
trust that is the complementary trust
to the credit shelter trust in the
will or living trust of a
married person.
MINOR
An individual who has not attained a specific age, generally either 18 or
21, set by state statute, at which time he/she is accorded full legal rights.
MUTUAL WILLS
See
RECIPROCAL WILLS.
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NET ESTATE TAX
The gross estate tax less the
applicable credit amount and any other applicable credits (eg,
credit for state death taxes, the "pick-up" tax).
One's net estate tax is
one's estate tax liability.
NEXT OF KIN (aka DISTRIBUTEE)
Historically,
those persons entitled to take or share, in whole or in part, any
personal
property of an intestate
decedent, now generally broadened to include all the
property of an intestate
decedent. Contrast: HEIRS.
NO CONTEST CLAUSE (aka IN TERROREM CLAUSE)
A will clause providing for the revocation of a
gift to any beneficiary who
unsuccessfully contests the will.
NOMINATE
What an individual does to name another as his/her
fiduciary (eg, personal
representative, testamentary
trustee, guardian) and whose nomination is subject to
approval by a court. An individual nominates --- a court
appoints. See APPOINT.
NONINTERVENTION POWERS
The powers granted under
RCW 11.68, usually upon appointment of a
Personal Representative, allowing him/her to
administer and close a solvent estate without further
interaction with, or supervision by, the Court.
NONPROBATE ASSETS
The assets comprising a Decedent's
nonprobate estate. Compare:
PROBATE ASSETS.
NONPROBATE ESTATE
The collection of assets ("nonprobate
assets") held by a Decedent that pass independent of his/her
Will, "outside of
probate." A Decedent's
nonprobate assets include:
Joint tenancy property (but not property held as a tenancy-in-common), which passes to the surviving joint tenants;
Joint bank accounts with right of survivorship, which pass to the surviving joint tenants;
Payable-on-death (ie, "in trust for, 'Totten trust'") bank accounts, which pass to the designated payable-on-death beneficiaries;
Transferable-on-death securities and securities accounts, which pass to the designated transferable-on-death beneficiaries;
Property whose title Decedent has transferred but whose possession Decedent has retained until his/her death (ie, retained life estates), which passes to the remainder beneficiaries according to the Deed or other conveyance document;
Property Decedent has transferred to a revocable living trust for his/her benefit, which continue to be held by the trust, now for the benefit of the successor beneficiaries;
Property subject to a community property agreement, which passes to Decedent's surviving spouse;
Life insurance policies on Decedent's life, whose proceeds pass to the designated beneficiaries;
Property held in Decedent's individual retirement accounts, which passes to the designated beneficiaries;
Property in Decedent's employee benefit plans, which passes to the designated beneficiaries;
Compare: PROBATE ESTATE.
NOTARY (aka NOTARY PUBLIC)
An individual authorized by a state to administer oaths and attest to the
authenticity of signatures.
NUNCUPATIVE WILL
An unwritten will that is spoken by the
testator during his/her last illness to
at least two witnesses. Washington law recognizes
nuncupative wills under very limited circumstances.
RCW 11.12.025
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OMITTED HEIR (aka PRETERMITTED HEIR)
A spouse or child of a
testator, which spouse or
child is neither named nor provided for in the will. An omitted
heir is
usually entitled to receive from decedent's
estate, despite the will, whatever
he/she would have received as an heir had the
testator died intestate.
In Washington, see
RCW 11.12.091 regarding an omitted child and
RCW 11.12.095 regarding an omitted spouse.
OUTRIGHT
Free of any restrictions, such as being subject to a trust.
OUTRIGHT GIFT
A gift that is made outright.
OUTRIGHT MARITAL
GIFT
An outright gift of the
marital deduction gift to the surviving
spouse.
OWNER
A holder of the right to ownership
of property.
OWNERSHIP
Not only the right to use and possess property (a "tenancy") but also to
exclude others from it and to transfer it, during life or at death, to another (effectively, the
exclusive right to use
and possess it for eternity).
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PAYABLE-ON-DEATH (aka
TRANSFER-ON-DEATH or as a
"TOTTEN" TRUST)
A form of ownership provided by some
state statutes for holding those assets specified by the statute, generally, bank accounts, certificates of deposit, savings
bonds, and securities. Upon the death of an owner of
property held as
payable-on-death, the named "in trust for "
beneficiary or "payee" automatically succeeds to the
property.
PECUNIARY GIFT
A gift of money, by
will or otherwise.
PER CAPITA
DISTRIBUTION
Literally, "by head." A
distribution of property by per capita distribution
passes in equal shares to all its recipients.
PERSON
Either an
individual or an organization, such as a corporation or a charity.
PERSONAL PROPERTY (aka
PERSONALTY)
All property that is not real property, generally either
tangible personal
property (having physical presence, such as cars, clothing, furniture, books,
jewelry, etc.) or intangible
personal property (representing an ownership right,
such as notes of indebtedness or securities, and including a contract interest
in real property, such as a lease).
PERSONAL REPRESENTATIVE
One of more persons
appointed by a
court to
administer a decedent's estate. See
Executor/trix and
Administrator/trix.
PERSONALTY
See PERSONAL PROPERTY.
PER STIRPES DISTRIBUTION
Literally, "by stirrups," relating to the up-side-down-"Y"-shaped appearance of a
genealogical chart. See BY RIGHT OF REPRESENTATION.
PICK-UP TAX
The estate tax, imposed by some states, equal to the
maximum allowable federal estate tax credit for estate taxes paid to a state.
The pick-up tax is designed by a state's legislature to divert to decedent's
resident state, at no effective cost to
decedent, tax that would otherwise have been paid to the federal government.
POSTHUMOUS HEIR
An heir conceived before, but born after,
Decedent's death.
POST-NUPTIAL
AGREEMENT
An agreement between a married couple in which agreement they determine the
property rights and interests each shall have upon termination of their
marriage, by dissolution or death. Compare:
PRE-NUPTIAL AGREEMENT.
POT TRUST
See FAMILY POT TRUST.
POUR-OVER WILL
A will in which the testator gives his/her
residuary estate
to the trustee of a trust, usually his/her
revocable living trust.
POWER OF APPOINTMENT
A right held by one person (the "holder') to dispose of
property owned by another.
POWER OF
ATTORNEY
1. The authority granted by one person (the "principal")
to another (the
"agent" or "attorney-in-fact") to act for the
principal. By law, the agent's authority terminates upon
the subsequent disability or death of the principal, hence the need for a power
of attorney that survives at least the principal's subsequent disability: a
DURABLE POWER OF ATTORNEY.
2. The document in which such authority is granted.
PRECATORY LANGUAGE
Words of intent or desire
but having no legal effect, eg, "I would like, I hope, I wish, etc."
PRE-NUPTIAL AGREEMENT (aka ANTE-NUPTIAL AGREEMENT)
An agreement between a couple in expectation, and possibly in consideration,
of their marriage to each other, in which agreement they determine the property
rights and interests each shall have if they wed. Compare:
POST-NUPTIAL
AGREEMENT.
PRESENT INTEREST
An unrestricted right to the
immediate use, possession, or enjoyment of property or
the income from property.
Contrast: FUTURE INTEREST.
PRETERMITTED HEIR
See OMITTED HEIR.
PRIMARY BENEFICIARY
The beneficiary who, if the beneficial right has
vested, is first entitled to receive the benefit.
Compare: CONTINGENT BENEFICIARY.
1. A person who appoints an agent in a power of attorney; or
PROBATE
Literally, "to prove." The primary purpose of a
probate proceeding is to prove before a competent judicial authority that an
offered document is the valid will of a decedent.
PROBATE ASSETS
The assets comprising a Decedent's
probate estate. Compare:
NONPROBATE ASSETS.
PROBATE ESTATE
The collection of assets ("probate assets") held by a
Decedent that pass
according to the terms of his/her Will (or according the the
laws of intestate succession in the absence of a Will). A
Decedent's probate assets are
generally those held in his/her name alone and, if married, held in the names of
the couple as their community property and not subject to a community property
agreement. Compare: NONPROBATE ESTATE.
PROPERTY
Anything
which may be the subject of ownership, such that its owner has the exclusive
right to possess, to use, to exclude others from it, and to transfer it to another.
PRUDENT-PERSON RULE (originally known as
PRUDENT-MAN RULE)
The investment standard for a fiduciary, based on
the 1830 Massachusetts case Harvard College vs. Amory:
"In acquiring, investing, reinvesting, exchanging, retaining, selling and managing property for the benefit of another, a fiduciary shall exercise the judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital."
The Prudent Person Rule emphasizes caution, conservation, but most of all preservation of capital.
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QUALIFIED CHARITY
An organization that is described in IRC § 501(c)(3) but that is not a private
foundation as described in IRC § 509.
QUALIFIED DOMESTIC ("Q-DOT") TRUST
A trust, analogous to a Q-TIP trust, established for the benefit of a
non-U.S. citizen spouse such that assets transferred to the trust qualify for
the estate or gift tax
marital deduction and will be subject to
estate tax at that spouse's later death.
Q-TIP TRUST
A trust that:
Is made by a married donor during life or in the will or living trust of a decedent married at death,
Is established for the benefit of his/her then current or surviving U.S.-citizen spouse,
Is the recipient of the donor's or decedent's Q-TIP marital deduction gift, and
Distributes, at least annually, all trust income to the then current or surviving spouse for life.
QUALIFIED TERMINABLE
INTEREST PROPERTY ("QTIP')
The minimal interest in property that
will qualify as a marital deduction gift
if elected by the donor or the decedent's
personal representative. As the
donee of a QTIP gift, the spouse
is required to receive all income from the property
for life, paid at least
annually.
The surviving spouse's right to income for life can be either legal or equitable. An example of a legal right to income for life would be a right of the surviving spouse to live in the family home rent free for the rest of his/her life. An example of an equitable right to income for life would be the right to all income from a trust whose assets consisted of publicly traded securities.
QUASI-COMMUNITY PROPERTY
Property acquired
by one or the other or both of husband and wife during the marriage while in a
separate property state that would have been
community property had they
acquired it while married in a community property state.
Community property states generally treat quasi-community property as
community
property .
QUITCLAIM
The transfer to another of all interest in the
subject property held by the transferor.
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REAL PROPERTY (aka
REALTY)
Property consisting of:
Land;
Property permanently affixed to land (eg, buildings);
Property contained within (eg, minerals) or growing (eg, crops and trees) on land; and
Any interest in such property (eg, a life estate or remainder).
REALTY
See REAL PROPERTY.
RECIPROCAL WILLS (aka MUTUAL WILLS)
Two wills, executed separately by each of
two testators, generally husband and wife, whose provisions are the mirror image
of each other.
REMAINDER
A future interest in
property held by someone other than the grantor and
that follows either a life interest or a
term of years. Compare:
REVERSION. Contrast:
LIFE ESTATE.
REMAINDERMAN
An individual who holds a remainder
interest in property or who may become a
remainder beneficiary.
For example, if a husband at death left his estate in
trust for his wife for her life and upon her death to his
children, the husband would be the grantor or
trustor, his wife would hold a
life interest and be the life beneficiary, and
his children would hold a remainder interest and be the
remainder beneficiaries.
Contrast: LIFE TENANT.
RENUNCIATION
See DISCLAIMER.
RESIDENCE (aka DOMICILE)
The location of a person’s home or principal
residence, although he/she may also have living quarters in another location.
Legally, a person can have only one residence.
RESIDENT STATE
The state in which a person
resides.
RESIDUARY
BENEFICIARY
The beneficiary of a decedent's
residuary estate.
RESIDUARY ESTATE (aka RESIDUUM)
The assets of a decedent's estate that remain after the payment of
all debts,
expenses, and taxes and the distribution of all specific and
general gifts.
RESIDUARY GIFT
A gift of all or a portion of the
residuary estate.
RESIDUUM
See
RESIDUARY ESTATE.
REVERSION
A future
interest in property held by the
grantor and that follows either a life interest
or a term of years. Compare:
REMAINDER.
REVIVAL
The validation of a previously revoked will upon the revocation of
the subsequent will as provided by statute in some states.
Some state statutes provide that if a testator has executed two
wills in
succession such that the later will expressly revokes the first will, then if
the testator subsequently revokes the second
will by itself (ie, not by
making a further will), the first will is "revived" and becomes valid once more.
See
RCW 11.12.080 regarding revival in Washington.
REVOCABLE TRUST
A trust that may be terminated after its creation, generally by the
trustor
during his/her lifetime.
RIGHT OF REPRESENTATION
See BY RIGHT OF REPRESENTATION.
RIGHT OF SURVIVORSHIP
See JOINT TENANCY.
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SALE
A voluntary transfer of property from one person (the "seller") to another (the "buyer")
for full consideration. Contrast: GIFT.
SECOND-TO-DIE INSURANCE
See JOINT AND SURVIVOR INSURANCE.
SECTION 6166 INSTALLMENT PAYMENTS
Internal Revenue Code § 6166 provides that if decedent's
gross estate includes an
interest in a closely held business (such as
a sole proprietorship, partnership, closely held corporation, family owned farm,
etc.), decedent's
personal representative may be able to elect to pay the pro-rata portion of
the estate tax attributable to the business (the
"attributable estate tax") in installments, such that:
Payment of the attributable estate tax itself may be deferred for up to 5 years, and
Payment of the interest on the attributable estate tax may be deferred for up to 10 years thereafter (ie, a maximum deferral period of 15 years).
SEPARATE PROPERTY
Property in community property states
that is either
Brought to the marriage, or
Acquired during the marriage by gift or inheritance.
Separate property is considered to be owned exclusively by its owner upon the marriage or by its donee following the marriage. The separate character of separate property is lost if separate property is commingled with community property (ie, separate property added to community property becomes community property itself). Contrast: COMMUNITY PROPERTY.
SEPARATE PROPERTY STATE
See COMMON LAW STATE.
SETTLOR
See TRUSTOR.
SIMULTANEOUS DEATH CLAUSE
See
COMMON DISASTER
CLAUSE.
SOLVENT ESTATE
For purposes of qualifying a Washington probate
estate for Nonintervention Powers
under
RCW 11.68.011, King County defines a solvent estate as one in which the
value of Decedent's probate assets and nonprobate assets exceeds the anticipated
amount of Decedent's debts and the costs of
administration.
SPECIAL NEEDS TRUST
A trust:
That is established for the benefit of an individual who is eligible to receive governmental assistance, funding, or other benefits, and
Whose creation and funding will not disqualify that individual from such eligibility.
SPECIAL POWER OF APPOINTMENT
See LIMITED POWER OF
APPOINTMENT.
SPECIFIC GIFT
A testamentary gift of a specified item in
decedent's estate. If the
item is not in the estate at decedent's
death, the gift is adeemed (ie, fails by
ademption), and its beneficiary
takes nothing from it. For example, "I give my shares of Microsoft stock
to the United Way" is a specific gift; the United Way takes however many shares
of Microsoft stock are in decedent's
estate at death. Contrast: GENERAL GIFT.
Spendthrift
A person who squanders money.
Spendthrift trust
A trust that:
Disallows the beneficiary from transferring his/her interest in the trust, and
Prevents the beneficiary's creditors from attaching the trust for payment of the beneficiary's debts.
SPOUSAL RIGHT OF ELECTION (aka SPOUSAL
RIGHT TO TAKE AGAINST THE WILL)
A surviving
spouse's right in common law states to elect to take a specified share of the decedent’s
estate instead of
under the will.
SPRINGING DURABLE POWER OF ATTORNEY
A power of attorney that takes ("springs" into) effect upon the disability of
the principal.
Sprinkling
trust
See DISCRETIONARY TRUST.
STATUTE
A law
enacted by a legislature.
STATUTE OF LIMITATIONS
A statute that bars all lawsuits, even upon a valid
claim, after the expiration of a specified period of time, which varies by state
law and depends on the type of claim.
STATUTORY LAW
A law based on a statute.
Contrast: COMMON LAW.
STEP UP IN BASIS
The increase in basis of property
received from a decedent as a result of its having a
greater fair market value at death (or
alternative valuation date, if applicable) than its
adjusted basis in decedent's
hands. Especially in the case of highly appreciated property,
being able to eventually transfer an asset such that it will receive an
anticipated step up in
basis in the hands of the donee can be a powerful incentive for a person to postpone making a
gift until
death. By postponing the transfer of
appreciated property until death, the donor effectively
removes its income tax liability in the
donee's hands. See BASIS.
SUCCESSION
Historically, the right to receive property from an
intestate decedent's
estate.
SUCCESSOR TRUSTEE
A trustee who follows the original or prior
trustee in
office.
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TANGIBLE PROPERTY
Property that:
Has physical substance,
Can be felt or seen, and
Is not merely a representation of real value (ie, a document representing ownership, such as a note of indebtedness or shares of stock).
Contrast: INTANGIBLE PROPERTY.
TAXABLE ESTATE
Total gross estate less total
allowable deductions. The
estate tax is levied on one's taxable estate.
TAXABLE GIFT
At first blush, a gift whose
fair market value exceeds any deduction (eg,
marital or
charitable deduction) or exclusion (eg,
annual exclusion) to which it may be
entitled --- in other words, a gift of more than currently $11K not to
one's spouse
or to a qualified charity.
TAX APPORTIONMENT CLAUSE
A will clause specifying the source of funds for
the payment of decedent's estate tax.
Tax apportionment clauses are generally of one of two types, either:
Each gift pays it pro-rata share, or
The residuary estate bears all estate tax liability.
TAX CREDIT
An
amount that is allowed to be deducted from the tax itself. For
example, for federal estate tax purposes:
The credit for state death taxes,
The credit for federal gift taxes,
The credit for foreign death taxes (Schedule P of Form 706), and
The credit for tax on prior transfers (Schedule Q of Form 706).
TENANCY
The right to use and possess property.
Contrast: OWNERSHIP.
TENANCY BY THE ENTIRETY
A form of ownership of
jointly held property in
common law states
such that:
Its co-owners are a married couple, and
Upon the death of either of them, his/her interest in the property passes to the surviving spouse.
Property held in tenancy by the entirety form is analogous to community property in community property states or to joint tenancy property owned exclusively by a married couple.
TENANCY IN COMMON
A form of ownership of
jointly held property in which each co-owner:
Has an equal right to use the property (as is true of all jointly held property in general), but
May hold a different fractional interest in the property as regards ownership and transfer, and
Has the right to transfer his/her share in the property during life and at death.
Contrast: JOINT TENANCY.
TENANT
A person holding a tenancy
in property.
TERM OF YEARS
A period of time of a numerically defined length, whether one day or 99 years.
TESTAMENT
A legal
declaration that names one or more persons to manage one's estate and provides for the
transfer of one's property at death, historically, of only one's
personal
property.
TESTAMENTARY
Literally, "specified according to the terms of a will."
TESTAMENTARY CAPACITY
The ability of a
testator, at the time of the making of his/her
will, to understand:
The nature and extent of his/her assets,
The natural objects of his/her bounty (usually, his/her family members),
The purpose of the will, and
Its result, namely, that he/she is directing the distribution of his/her assets on death.
TESTAMENTARY INTENT
The intention of a
testator, at the time of signing the relevant document, to make a
will.
So, for example, decedent's letter to his/her lawyer saying, "Please draft a
will for me that leaves all of my estate to my spouse." would not amount to a
will for lack of testamentary intent.
TESTAMENTARY GIFT
A gift made by will. Compare: BEQUEST;
DEMONSTRATIVE GIFT; DEVISE;
GENERAL GIFT;
LEGACY; SPECIFIC GIFT;
RESIDUARY GIFT.
TESTAMENTARY POWER OF
APPOINTMENT
A power of appointment that may be exercised only by
will.
TESTAMENTARY TRUST
A trust created in a will.
TESTATE
Literally, "having
made a will."
TESTATOR
Literally, "one
who makes a will." See
RCW 11.12.010 regarding who may make a will in Washington.
TESTATRIX
A female testator.
"TOTTEN" TRUST
See PAYABLE-ON-DEATH.
TRANSFER-ON-DEATH
See PAYABLE-ON-DEATH.
TRUST
A legal
arrangement in which when one party (the "trustee") holds legal title to and
manages property for the benefit of a person (the "beneficiary"),
often another.
TRUSTEE
The legal owner and manager of property held for the benefit
of the beneficiary.
TRUST INCOME
The income derived from investment of assets of a
trust.
TRUSTOR (aka GRANTOR or as
SETTLOR)
A person
who creates a trust, either during life (an "inter-vivos
trust," also known as a "living trust") or by will at death (a
"testamentary
trust").
TRUST PRINCIPAL
The assets held by a trust, from which
income is derived.
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UNDIVIDED INTEREST
The interest in property held by each co-owner
of jointly held property. Each tenant has
an equal right to use and enjoy the entire property and, unless an agreement to the
contrary exists, is entitled to an income share proportional to his or her
ownership interest. If the property is sold, the sale proceeds are shared
among tenants in proportion to their respective ownership shares, although unequal share ownership is not
possible in a joint tenancy. See
JOINT TENANCY;
TENANCY BY THE ENTIRETY;
TENANCY IN COMMON.
UNDUE INFLUENCE
The use of psychological pressure or coercion on a
testator to
make a will, thus making it invalid. See
duress.
UNIFIED CREDIT
See APPLICABLE CREDIT AMOUNT.
UNIFORM GIFTS TO MINORS ACT ("UGMA")
See UNIFORM TRANSFERS TO MINORS ACT.
UNIFORM TRANSFERS TO MINORS ACT ("UTMA")
A statutory method of holding
property for the benefit of a minor. See
CUSTODIAN.
UNLIMITED MARITAL DEDUCTION
See MARITAL DEDUCTION.
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VENUE
The location of the Court where is case is heard or a trial is held.
VESTED
An interest in property that is an
absolute, immediate, and fixed right and not subject to the occurrence or
nonoccurrence of a future event. In Washington, title to
real property of a decedent
vests in his/her heirs and devisees
immediately.
RCW 11.04.250 and
RCW 11.04.290 Contrast:
CONTINGENT.
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WAIVER
The intentional relinquishment of a right, privilege, or claim; a document
evidencing such relinquishment.
WARD
The individual who is the subject of a guardianship or
conservatorship.
WILL
A legal
declaration that names one or more persons to manage one's
estate and provides for the
transfer of one's property at death, historically, of only one's
real property. Contrast:
TESTAMENT.
WILL SUBSTITUTE
A device used instead of a will to transfer
property (ie,
nonprobate assets) at death, eg, a trust, a community property
agreement, a life insurance policy, a retirement plan, etc.
1. As a noun: One who, being physically present, personally perceives a relevant object or action that has legal significance and is able to testify in court as to his/her perception; or
2. As a verb: The act of such perceiving.
See RCW 11.12.020 for the witnessing requirements for wills in Washington.
WRONGFUL DEATH
A death caused by the willful or negligent act of another.