Estate Planning Terms
A-B trust: A two-part trust commonly used by married couples that takes effect upon the death of one spouse. The A trust, a survivor’s trust, is maintained for the surviving spouse, while the B trust, a bypass trust, contains assets that will be passed on to beneficiaries, such as children.
Administrator: An individual or entity named by the court who represents the deceased’s estate in the event of intestacy. The duties are comparable to that of an executor named by a will.
Advance Medical Directive: A formal document outlining a person’s wishes for end of life care, detailing who can make medical decisions for them and what to do in the event of permanent incapacitation or a vegetative state. This document usually includes a power of attorney and living will.
Assets: Property owned by an individual, including real estate, vehicles, and personal property.
Attorney-in-fact: The individual named by a power of attorney document who is empowered to make decisions on behalf of someone else.
Beneficiary: A person or entity who receives assets or benefits from a will, trust, or other estate planning document.
Bequest: A gift outlined in a will or trust, usually of a specific item to a specific person. See also gift.
Capacity: Being of sound mind according to the law and therefore able to perform acts recognized by law, such as creating estate planning documents, acting on someone’s behalf, etc.
Certificate of trust: A document that testifies to a trust’s existence. A shortened version of the trust.
Charitable trust: A trust in which the named beneficiaries are charities.
Charitable lead trust: A trust that distributes a payment of money to a charity regularly for a prescribed period of time. After that period of time ends, the assets are transferred to named beneficiaries.
Charitable remainder trust: A trust that distributes a payment of money to a non-charity beneficiary for a prescribed period of time. After that period of time ends, the remaining assets are transferred to named charities.
Codicil: An amendment to a will.
Community property: Any assets acquired by spouses during marriage. These assets are considered jointly owned by the couple.
Conservator: A court-appointed individual or entity who manages the financial affairs of a minor or incapacitated adult.
Decedent: An individual who has died.
Deed: A legal document transferring ownership of real estate property from one person to another.
Durable power of attorney: A legal document that empowers an individual to make decisions on behalf of a person in the event of that person’s incapacitation. There can be separate durable powers of attorney for medical and financial decisions. See also power of attorney.
Estate planning: The process in which an individual plans for the distribution of assets, minimization of taxes, and settling of personal affairs after death through the use of legal documents such as wills, trusts, and other planning measures.
Estate tax: Federal tax on the transfer of assets after death.
Executor: Individual or entity appointed by a will who is responsible for taking stock of the estate, paying debts and taxes, and distributing the remaining assets to beneficiaries.
Family trust: A trust created for the benefit of family members, such as surviving spouses or children.
Fiduciary: An individual or entity, such as a bank or trust company, that manages money or property on behalf of someone. Bound to a certain standard of care in how they govern these assets.
Funding a trust: The process that transfers assets into a trust.
Generation skipping transfer (GST) tax: A federal tax imposed on assets transferred from an individual to a family member more than one generation removed. This tax ensures families don’t avoid taxes by skipping a generation and passing on assets to grandchildren.
Gift: The transfer of an asset without expecting compensation in return. See also bequest.
Gift tax: A federal tax on completed gifts that are transferred from one person to another during a lifetime.
Grantor: An individual or individuals who form a trust
Gross estate: Total value of property and assets held by an individual at the time of death.
Guardian: A court- or will-appointed individual or entity who provides care and makes personal decisions for a ward. A ward is either a minor or a mentally or physically incapacitated adult.
Guardianship: A court- or will-appointed protection for a minor child or incapacitated adult that involves naming a guardian to oversee the ward’s personal well-being and make important care decisions.
Heir: An individual legally entitled to inherit assets or property if the deceased did not leave a will or other estate planning documents. An heir and a beneficiary are not interchangeable, but the same individual could count as both.
Holographic will: A handwritten will. A holographic will must meet certain guidelines to be accepted as legitimate.
Incapacity/Incompetence: A situation in which an individual is deemed unable to act on his or her own behalf in legal matters.
Income: Assets or money earned by an estate or trust. Examples of income include rent, interest, or cash dividends.
Insurance trust: An irrevocable trust that establishes life insurance on an individual or couple that excludes the proceeds of the policy from the individual or couple’s taxable estate at death.
Intestate: Dying without a valid will.
Irrevocable trust: A trust that, once put into place, cannot be altered or terminated.
Joint ownership: When two or more people share ownership of the same asset.
Joint tenancy: When two or more people share ownership of the same asset and, at the death of one owner, the asset becomes the co-owner’s property. Ownership transfers immediately at death.
Living trust: A kind of revocable trust created by an individual during his or her lifetime.
Living will: A kind of advanced healthcare directive that details a person’s wishes for treatment for a terminal condition or if permanently incapacitated.
Marital trust: A trust established by a couple that holds the surviving spouse’s share of the trust after the death of first spouse.
No-contest clause: A provision in a will or trust that disinherits an individual who contests or challenges the will or trust’s validity.
Nuncupative will: An oral will. Not recognized in Arizona.
Payable on death: A bank account that lists a named beneficiary who will receive the account holder’s assets immediately upon death.
Personal representative: Another term for an executor or administrator of an estate.
Per stirpes: The distribution of assets along the family tree so each member receives an equal share. If someone in the family dies, their share is divided equally among the surviving members. Latin for “by branch.”
Pour-over will: A will crafted in conjunction with a living trust that specifies that any assets not named to a beneficiary in the last will and testament will transfer to the living trust at the individual’s death.
Power of attorney: A legal document empowering an individual to act on behalf of someone else. General power of attorney has broad powers, while special power of attorney appoints someone only for specific acts. See also durable power of attorney.
Probate: The process by which a will is deemed legitimate by a court, allowing for the payment of debts, distribution of assets, and finalizing of the deceased’s affairs.
Revocable trust: A trust created during an individual’s lifetime that can be changed or revoked at any time. Many revocable trusts become irrevocable when the individual dies.
Settle an estate: The handling of affairs after an individual dies. Includes taking inventory and appraisal of assets, paying debts and taxes, and distributing remaining assets to beneficiaries.
Settlor: Another term for a grantor, a person who establishes or settles a trust.
Special needs trust: A trust established to specifically provide for a disabled or incapacitated individual without eliminating the individual’s’ eligibility for government needs-based programs.
Successor trustee: An individual or entity that becomes a trustee after the initial trustee dies, resigns, or is unable to fulfill the role.
Tenancy in common: A type of property ownership in which two or more individuals each have a share of the rights to the property. At the death of one owner, his/her rights are passed onto heirs or beneficiaries through a will or laws of succession.
Testator: The person who creates a will.
Trust: A legal agreement between the grantor, who creates the trust, the trustee, who manages the trust, and the beneficiaries, who receive the assets from the trust. Often the grantor is also the main trustee or beneficiary. Property and assets transferred to the trust are owned by the trust. There are many kinds of trusts, such as A-B, special needs, marital, insurance, charitable, family, revocable, and irrevocable trusts.
Trust company: An institution that manages trusts.
Trustee: An individual or entity, such as a bank or trust company, that manages and administers a trust. The trustee has a fiduciary duty of care to act in the best interest of the trust and its beneficiaries. There can be more than one trustee overseeing a trust.
Will: A formal legal document that directs how a person’s property is to be distributed after that person’s death.