Author: Brenton McWilliams
In this post, I provide a list and explanation of 58 commonly used terms in estate planning and estate administration.
Accounting: A report of transactions taking place during a certain time period. An accounting may be provided to the court or to individuals such as beneficiaries of a trust. Guardians, conservators and estate administrators are typically required to submit an accounting to probate court.
Administration: The process involved with moving an estate to final distribution. The process of administration differs between testate and intestate estates. At a high level, the process involves marshaling and protecting the property of the estate, settling any claims from creditors and distributing the property of the estate to the heirs.
Advance Directive: A document naming an agent and instructing the wishes of the creator (the “principal”) in the event the principal becomes unable to make decisions for themselves. Advanced directives will generally appoint a health care proxy to make health care and medical treatment decisions if necessary. An advanced directive may also be referred to as a health care power of attorney or living will.
Agent: A person given authority to act on another person’s behalf in some fashion. Agents are typically held to a fiduciary duty to act in the best interests of their principal. One example of an agent in the estate planning context is an attorney-in-fact appointed to act for a principal under a power of attorney. A health care proxy named in a health care power of attorney is also an agent.
Annual Gift Tax Exclusion: The annual amount according to federal tax laws which one individual may give to any number of individuals without being subject to federal gift tax.
Basis: Typically used for tax purposes, the basis of an asset is the value of the asset when it was acquired. For example, if a person acquires a piece of real estate for investment purposes and sells it many years later after the property appreciates in value, the basis will be the value of the property when it was originally purchased before it appreciated in value. When a beneficiary receives an asset from decedent the asset may receive a “step up” in basis which would bring the basis up to the value of the asset at the decedent’s death versus a “carryover” basis which would pass on the decedent’s original basis to the beneficiary.
Beneficiary: A person or organization receiving some part of the assets of an estate or trust.
Bequest: A gift of personal property to a beneficiary under a Will. A bequest refers to personal property whereas a devise refers to real property.
Codicil: A document which amends the instructions of a Last Will and Testament.
Corpus: The property held within a trust, also referred to as the principal of the trust. The corpus may be invested to generate income which would not be considered part of the corpus unless it is added in. The corpus would include the property placed in the trust by the settlor or grantor along with any income added to the corpus.
Decedent: A deceased person, typically used in the context of estates.
Devise: A gift of real property to a beneficiary under a Will. A bequest refers to personal property whereas a devise refers to real property.
Digital Assets: Electronic records such as photos or videos and, also, an online user account and information associated with an online user account. For example, social media accounts such as Facebook and Twitter would be considered digital assets. Alabama enacted the Alabama Fiduciary Access to Digital Assets Act in 2018 which provides a process for the personal representative of an estate or other fiduciaries to access the digital assets of a decedent.
Disclaimer: A disclaimer is an action taken by a beneficiary under a Will or Trust to waive the right to receive assets to which the beneficiary would otherwise be entitled. Many times, a disclaimer is used for tax purposes through a Qualified Disclaimer.
Disinherit: The act of purposely excluding a person from receiving assets as a beneficiary under a Will or Trust. Typically, the person is a family member who would otherwise inherit under the intestate laws. Thus, by creating the document excluding them, the person’s inheritance is taken away.
Domicile: A person’s permanent residence usually referring to the particular state where their permanent residence is located. A domicile is established by the last place a person moved to without
Executor: The individual or organization who administers the estate and carries out the decedent’s instructions in the Will including distribution of the estate assets to the heirs of the estate passing under the Will. The term executor specifically refers to the individual or organization appointed within a Will to administer the estate as opposed to an administrator who is appointed by the probate court. The term personal representative includes both executors and administrators.
Estate: The aggregate assets owned by an individual. An estate may have different categories. For example, a trust estate would include all assets held by a trust. The probate estate refers to the assets within an estate which need to go through administration in probate.
Fiduciary: An individual or organization entrusted with the authority to act in place of another individual. The fiduciary is held to the corresponding fiduciary duty which requires that the fiduciary act in the best interests of the individuals served by the fiduciary. Examples of fiduciaries are estate executors, trustees, guardians and conservators.
Grantor: The creator of a trust. The trust grantor signs the trust agreement and funds the trust with the grantor’s assets. The creator of a trust may also be referred to as the settlor, trustor or trust maker.
Grantor Trust: A trust which is not treated as a separate taxpayer from the settlor for tax purposes. The trust settlor may be personally taxed on some portion of the income of the trust instead of the trust itself.
Heir: The individuals or organizations entitled to receive assets belonging to a decedent. The heirs are the beneficiaries under a Last Will and Testament or, in the case of intestacy, the heirs at law entitled to receive assets of the estate under the laws of intestate succession.
Income: In the context of estate planning, this generally refers to the distinction of assets belonging to a trust between the principal or corpus and the income. In the trust context, the income includes the funds generated from the investment of the principal. The income is commonly paid out on an annual basis for tax purposes. If the trust income is retained it may be become a part of the principal of the trust.
Intangible Property: Property that itself has no intrinsic and marketable value but represents something with value. Examples of intangible property include certificates of stock, bonds and promissory notes.
Inter Vivos Trust: A trust created during a person’s lifetime, the alternative being a testamentary trust created at a person’s death. An inter vivos trust may also be referred to as a living trust.
Intestacy: The absence of a Last Will and Testament. An intestate estate is an estate where the decedent did not leave a Last Will and Testament. When a decedent does not leave a Will, the decedent’s assets are transferred to heirs at law according to default rules contained in the intestate succession laws.
Irrevocable Trust: A trust which by its terms cannot be revoked or amended by the trust grantor. The property within the irrevocable trust can only be removed from the trust in accordance with the terms of the trust. A trust may start out as a revocable trust and later become an irrevocable trust based on the happening of some future event such as the death of the trust grantor.
Issue: All the lineal descendants of a person including all generations.
Joint Tenancy with Right of Survivorship: Property ownership between two or more individuals where on the death of one of the owners the survivor takes full ownership of the property by operation of law.
Last Will and Testament: A document used for an individual to provide instructions for the disposition and transfer of the individual’s property at death. Commonly referred to as a Will. A properly drafted Will can relieve the executor from the requirement to purchase a bond, file an inventory, and grant the executor leave to engage in many routine transactions without oversight from the probate court.
Life Estate: A retained interest in real property which allows the owner the right of possession and the right to income from the property for the rest of their life. At the death of the owner, the life estate terminates and full ownership of the property comes into the hands of those owning the remainder interest.
Limited Power of Appointment: The granted authority to select the beneficiary of an asset from a defined group of potential beneficiaries.
Living Trust: A trust created during the lifetime of the trust grantor, the alternative being a testamentary trust created at a person’s death. A living trust may also be referred to as an inter vivos trust.
Living Will: Also referred to as an advance directive, healthcare power of attorney or healthcare proxy. A living will is a document which may name an agent and instruct the wishes of the creator (the “principal”) in the event the principal becomes unable to make decisions for themselves. A living will may appoint a health care proxy to make health care and medical treatment decisions if necessary.
Non-Probate Property: Property that transfers on death by operation of law rather than through the probate process. Examples of non-probate property include survivorship property and accounts with an assigned pay on death beneficiary.
Per Stirpes: An instruction for the issue of a deceased beneficiary to receive the share the beneficiary would have otherwise received if living. The issue of the deceased beneficiary step into the deceased beneficiary’s place and equally share the property.
Personal Property: Any assets which are not real estate/real property. Money, cars and furniture are examples of personal property.
Personal Representative: The individual responsible for administrating an estate through the probate process. In Alabama, this term includes both executors and administrators.
Pourover Will: A Last Will and Testament used for trust planning. The Pourover Will is used as a backup in case assets are left outside of the trust with no other means of direction for transfer. The Pourover Will directs assets into the trust to be administered according to the terms of the trust.
Principal: The property held within a trust, also referred to as the corpus of the trust. The principal may be invested to generate income which would not be considered part of the principal unless it is added in. The principal would include the property placed in the trust by the settlor or grantor along with any income added to the principal.
Probate: The legal process involved with transferring the assets of a deceased person to their beneficiaries. The assets may pass according to a Will or the laws of intestate succession. The process involves proving the Will (if there is a Will), gathering and preserving the assets of the deceased, settling claims with any creditors, and distributing the proceeds of the estate to the heirs. The probate process is supervised by the probate court and may be removed to circuit court.
Probate Property: Assets of the deceased which are subject to the probate process.
Real Property: Land, any interests in land, and immovable property fixed to the land. Also referred to as real estate or realty. Examples of real property include a primary residence, a second home for vacation, investment real estate, a farm, or a condominium.
Residue: The property of the estate less personal bequests and amounts paid for claims or debts. The residue is used as a catchall term in the Will to include all assets that were not already covered in the Will. In the typical Will, the residue will comprise the bulk of the estate. The disposition of the residue will typically be referred to as the rest residue and remainder of the estate.
Revocable Trust: A trust which may be revoked or amended by the trust grantor during the lifetime of the grantor. A trust may start out as a revocable trust and later become an irrevocable trust based on the happening of some future event such as the death of the trust grantor.
Settlor: The creator of a trust. The creator of a trust may also be referred to as the trustor, grantor or trust maker.
Spendthrift Provision: A trust provision which limits access to the trust by the beneficiary’s creditors. When an effective spendthrift provision is added to a trust, the beneficiary’s creditors are limited to collecting against the actual distributions made to the beneficiary from the trust.
Special Needs Trust: A special needs trust is a trust set up by or on behalf of a disabled individual to hold assets that would otherwise disqualify the individual from receiving means-based government benefits. Special needs trusts are frequently used in situations where a disabled individual receives a personal injury settlement or inheritance. A special needs trust funded by assets belonging to the disabled individual is known as a self-settled special needs trust or a first party special needs trust. A self-settled special needs trust must have a payback provision to pay the government back for benefits received to the extent of the assets remaining in the trust at the death of the trust beneficiary. A third party special needs trust is funded with assets belonging to someone other than the beneficiary of the trust.
Sprinkling Trust: A trust that grants discretion to the trustee to vary the timing and amount of distributions among the members of a class of beneficiaries in unequal amounts.
Tangible Personal Property: The assets of a person which can be touched and are moveable. Cars and furniture are examples of tangible personal property
Tenancy in Common: A form of co-ownership of property where each owner owns an undivided interest in the property. In contrast to a joint tenancy with right of survivorship, there is no automatic survivorship provision. On the death of one of the owners, the owner’s interest in the property passes as part of their estate unless otherwise designated within the instrument creating the interest.
Testator: The decedent who created the Will.
Testamentary Trust: A trust created at the trust grantor’s death by a Last Will and Testament.
Trust: A trust is a set of instructions created by the trust settlor and given to the trustee. The trustee holds legal title to the trust property for the benefit of the trust beneficiaries. The trust is typically in writing. The trust is created by providing instructions for the trust and funding the trust with property. For every trust, there must be a settlor, trust property, a trustee, and at least one beneficiary. For estate planning, the trust provides a flexible vehicle for management of the settlor’s property and transfer to future generations. A trust can be used by the settlor to control the trust property beyond the settlor’s lifetime.
Trustee: The person or organization tasked with carrying out the instructions of the trust. The trustee acts for the trust as a fiduciary of the trust. The trustee may be granted broad authority to make decisions for the trust. For example, the trustee may have discretion to direct the investment of the trust property and to decide when distributions will be made to beneficiaries of the trust.
Trustor: The creator of a trust. The creator of a trust may also be referred to as the settlor, grantor or trust maker.
Trust Situs: The choice of jurisdiction, specifically state law, for interpretation of the trust terms and the procedure for administering the trust. The law applicable to trusts differs from state to state. Although, many states have enacted a uniform trust code or some portion of it.
Will: A shortened form of Last Will and Testament. A document used for an individual to provide instructions for the disposition and transfer of the individual’s property at death. A properly drafted Last Will and Testament can relieve the executor from the requirement to purchase a bond, file an inventory, and grant the executor leave to engage in many routine transactions without oversight from the probate court.