Estate Planning Definitions

Current Estate and Gift tax figures: click here.

ANNUAL GIFT TAX EXCLUSION: Method that permits gifts without triggering estate or gift taxes while preserving lifetime exclusion amounts.

CHILDREN’S OR GRANDCHILDREN’S IRREVOCABLE EDUCATION TRUST: A trust established by parents and grandparents to fund educational expenses for children or grandchildren.

CHARITABLE REMAINDER INTEREST TRUST: A trust structure where donors place property into a charitable trust while maintaining an income stream from the transferred assets. Donors receive a charitable contribution income tax deduction and avoid capital gains tax on the transferred property.

FAMILY LIMITED PARTNERSHIP: A business entity designed to:

• Protect partnership assets from individual partner creditors
• Shield limited partners from creditor claims
• Allow gifts to children while parents retain management authority
• Decrease transfer tax valuation of property

FEDERAL ESTATE TAX: A levy imposed by the federal government on a deceased person’s estate. The federal government provides specific exclusions and deductions, then taxes amounts exceeding established thresholds.

FRACTIONAL INTEREST GIFT: Permits a donor to transfer partial ownership in real property to recipients while obtaining fractional interest discounts for estate and gift tax calculations.

FUNDING: The procedure of transferring individually owned assets into your trust’s name.

GENERATION SKIPPING TAX: A tax imposed on assets transferred to individuals who are more than one generation removed from the donor. For instance, when a grandparent transfers assets to a grandchild during life or through inheritance. Strategic use of generation-skipping exemptions prevents these assets from being included in the child’s taxable estate.

GUARDIANSHIP/CONSERVATORSHIP: A court-monitored process that appoints an individual or organization to handle the affairs of someone who cannot manage their own matters. Guardianship may also involve caring for the incapacitated individual.

HEALTH CARE POWER OF ATTORNEY: A document that authorizes someone you designate to make medical decisions on your behalf if you become unable to do so.

IRREVOCABLE LIFE INSURANCE TRUST: A trust designed to exclude insurance proceeds from estate taxation upon the insured person’s death.

JOINT TENANCY: When two or more people own property in joint tenancy with survivorship rights, the deceased owner’s interest automatically transfers to the remaining owners upon death.

LIVING WILL: Also known as a physician’s directive, this document provides instructions for life-sustaining treatment when you cannot communicate your preferences. Some states have incorporated this into advance healthcare directives.

POUR OVER WILL: Serves two primary functions: first, to designate guardians for minor children, and second, to prevent intestacy if any assets remain outside the trust at the trustor’s death. It “pours” overlooked assets into the trust for distribution according to trust terms.

PRIVATE FOUNDATION: A structure used by wealthy families to obtain charitable income, gift, or estate tax deductions while maintaining some oversight of foundation assets.

PROBATE: The court process that transfers asset ownership from a deceased individual to beneficiaries. This is also where creditors file claims against the estate and where interested parties may challenge the will. Anyone who dies with a will or without an estate plan will undergo this process.

PROPERTY POWER OF ATTORNEY: A document that allows your designated agent to manage your property matters.

REVOCABLE LIVING TRUST: A tool used to bypass probate and provide asset management during your lifetime and after death.

STATE ESTATE OR INHERITANCE TAX: A state estate tax is imposed by state governments on deceased persons’ estates, similar to federal estate tax. A state inheritance tax varies based on the inheritor’s relationship to the deceased. Nearly half of all states impose separate state estate or inheritance taxes that begin at lower thresholds than federal requirements.

STEP-UP IN BASIS: A step-up or step-down in basis adjusts an asset’s income tax basis to its fair market value at the owner’s death. For example, stock purchased for $100 that grows to $500 at death would have a tax basis that increases from $100 to $500 upon death.

TRUSTEE: The individual or organization responsible for trust assets. During your lifetime, you may serve as trustee. For married couples, one or both spouses may serve as trustee or co-trustees. The successor trustee is the person or corporate fiduciary you choose to manage your trust if you become disabled or die.

WILL: A legally binding document that specifies how someone wants their property distributed after death. A will can also recommend guardians for children.