Legacy Planning Definitions

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ANNUAL GIFT TAX EXCLUSION:
A method that permits giving assets to others without triggering gift or estate taxes and without reducing your lifetime tax exemption.

CHILDREN’S OR GRANDCHILDREN’S IRREVOCABLE EDUCATION TRUST:
A trust established by parents or grandparents to fund educational expenses for younger family members.

CHARITABLE REMAINDER INTEREST TRUST:
An arrangement where you transfer assets to a charitable trust while continuing to receive income from those assets. This provides tax deductions for charitable contributions and helps avoid capital gains taxes on appreciated property.

FAMILY LIMITED PARTNERSHIP:
A business structure that serves multiple purposes:

• Shields partnership assets from individual partners’ creditors
• Protects limited partners from liability
• Allows parents to transfer wealth while retaining control
• Potentially reduces the taxable value of transferred property

FAMILY WEALTH TRUST:
The central element of a Legacy Wealth Plan that addresses important matters beyond simply avoiding probate.

FEDERAL ESTATE TAX:
A tax imposed by the federal government on a deceased person’s assets. After applying certain exclusions and deductions, the government taxes amounts above a specified threshold.

FRACTIONAL INTEREST GIFT:
A strategy for transferring partial ownership in real estate to recipients, potentially qualifying for valuation discounts that reduce gift and estate taxes.

FUNDING:
The process of moving assets from your personal ownership into your Trust’s name.

GENERATION SKIPPING TAX:
A tax applied to assets given to people two or more generations younger than the giver. For instance, when grandparents transfer assets to grandchildren during life or at death. Proper use of generation-skipping exemptions prevents these assets from being taxed in the child’s estate.

GUARDIANSHIP/CONSERVATORSHIP:
A court-supervised arrangement that appoints someone to handle the affairs of a person who cannot manage them independently. This may also include responsibility for the person’s physical care.

HEALTH CARE POWER OF ATTORNEY:
A document that authorizes someone you choose to make medical decisions for you if you cannot make them yourself.

IRREVOCABLE LIFE INSURANCE TRUST:
A trust designed to keep life insurance proceeds out of your taxable estate when you pass away.

JOINT TENANCY:
A form of ownership where two or more people share property with survivorship rights. When one owner dies, their share automatically transfers to the surviving owners.

LIVING WILL:
Also known as a physician’s directive, this document specifies your preferences for life-sustaining medical treatment if you cannot communicate your wishes. Some states incorporate this into an advanced health care directive.

POUR OVER WILL:
This document serves two main purposes. First, it names guardians for minor children. Second, it ensures any assets not already in your Trust at death are transferred into it, following the Trust’s distribution instructions.

PRIVATE FOUNDATION:
A charitable organization typically established by wealthy families to support philanthropic causes while maintaining some influence over the foundation’s assets and receiving tax benefits.

PROBATE:
The court process that transfers ownership of a deceased person’s assets to their beneficiaries. This is also where creditors file claims for payment and where interested parties may challenge the Will. Anyone who dies with only a Will or without any estate plan goes through this process.

PROPERTY POWER OF ATTORNEY:
A document that allows someone you select to handle your financial affairs and property matters.

REVOCABLE LIVING TRUST:
A legal arrangement that helps you bypass probate while managing your assets during your lifetime and after death.

STATE ESTATE OR INHERITANCE TAX:
State estate taxes function similarly to federal estate taxes but at the state level. State inheritance taxes vary based on the beneficiary’s relationship to the deceased. Nearly half of all states impose their own estate or inheritance taxes, often at lower thresholds than federal taxes.

STEP-UP IN BASIS:
An adjustment to an asset’s value for income tax purposes, changing it to the fair market value at the owner’s death. For instance, if you purchased stock for $100 that grew to $500 by your death, your tax basis adjusts from $100 to $500 at death.

TRUSTEE:
The individual or organization responsible for managing Trust assets. During your lifetime, you typically serve as Trustee. Married couples can serve as co-Trustees. You also designate a successor Trustee to take over if you become incapacitated or pass away.

WILL:
A legal document that specifies how you want your property distributed after death. A Will can also designate guardians for minor children.