A Comprehensive List of Planned Giving and Estate Planning Terms
Get familiar with some of the most common terms organizations encounter when diving into the world of bequests and other kinds of planned gifts.
A planning technique used by a married couple to defer estate taxes to the second death and to reduce the overall burden of estate taxes. When the first spouse dies, the trust splits into a “survivor’s” portion (Trust A) and a “decedent’s” or “bypass” portion (Trust B). The surviving spouse may receive the assets in the “A” trust outright, or in any event the trust will qualify for the estate tax marital deduction., The surviving spouse may also be a beneficiary of the “B” trust, but her interest in that trust will not be such as would qualify the trust for an estate tax marital deduction. When the surviving spouse dies, the remainder of both trusts will be distributed to or held in further trust for children and grandchildren, free of any further estate or inheritance tax, while the “A” trust is included in the surviving spouse’s estate for tax purposes.
The effective revocation of a specific bequest by the testator disposing of the subject property during life. Specific bequests can be adeemed, while demonstrative and general bequests cannot.
The process in which an estate executor or administrator collects a decedent’s assets, pays any remaining debts or claims, and follows the will or state intestacy laws (in the absence of a will) to distribute the remaining estate assets to the legatees or heirs.
A person assigned by a probate court to manage an estate in the absence of a will; when no executor has been designated; or when the intended executor cannot or will not perform their duties.
Also called a living will, this document details your wishes for medical care should you become incapacitated and cannot communicate those wishes. It includes stipulations such as when — or if — resuscitation or life support should be used to prolong your life. A living will should be attached to your estate plan and be easily accessible, because if you suffer from a terminal illness or life-threatening injury, doctors and hospitals consult your living will to determine your desires. If you’ve ever had surgery that involves anesthesia, a health care professional has probably asked if you have an advance directive.
Age of majority
The age at which one is legally recognized as an adult with legal capacity to enter into binding contractual arrangements. In most U.S. states, this is 18, but in some it is 19 or 21.
The amount of money or property one person can give to another each calendar year without reducing the applicable exclusion amount. The annual exclusion applies only to gifts of “present,” not “future” interests. If no other gifts are made during the calendar year, gifts qualifying for the annual exclusion need not be reported to IRS on a gift tax return.
Applicable exclusion amount
The aggregate amount that an individual can transfer, during life and at death, before incurring gift or estate taxes. Also called the “estate tax exemption amount” or the “unified credit equivalent.” Annual exclusion gifts do not count toward this total.
Criteria that sufficiently limit the trustee’s discretion in making distributions to trust beneficiaries that the trustee will not be treated for gift and estate tax purposes as holding a “general” power of appointment. A limitation on the trustee’s discretion to make distributions for a beneficiary’s health, education, support, or maintenance is considered “ascertainable,” whereas discretion to distribute for a beneficiary’s “comfort” is not.
The person authorized, through a written power of attorney, to handle the medical and/or financial affairs of another. The authorized person need not be licensed to practice law.
A person named in a will or trust instrument to receive distributions of income or property. The term also applies to someone who is named as the recipient of life insurance proceeds or retirement plan benefits
A gift of money or property to an individual or organization under the terms of a decedent’s will.
A legal contract that, in businesses with multiple owners, stipulates terms for remaining owners to purchase the interest of an owner who is withdrawing or deceased.
The “B” portion of an A-B trust. The B, or “bypass” portion of the trust, is sheltered from the federal estate tax by the decedent’s estate tax exclusion amount.
Charitable gift annuity
A contract that provides one or two beneficiaries with fixed income for life in exchange for a contribution to the nonprofit issuer. The gift can be made with cash, securities, or assets, depending on the nonprofit’s gift acceptance policies..
Charitable lead trust
An irrevocable trust that pays income to a charity or charities for a set period of time. At the end of that time, the remaining assets are distributed to the donor or other beneficiaries. To qualify the lead interest for an income tax charitable deduction, the “income” interest must be defined as a fixed annuity or unitrust amount.
Charitable remainder trust
A tax-exempt, irrevocable trust that pays income to the settlor and/or other beneficiaries for a set term—either life, or a specified number of years. At the end of the term, the trust remainder is distributed to one or more designated charities. To qualify the remainder interest for an income tax, gift tax, or estate tax charitable deduction, the “income” interest must be defined as a fixed annuity or unitrust amount, though a unitrust payout may be subject to a net income exception.
A document that amends, rather than replaces, a previously executed will. Amendments made by a codicil may add or revoke or revise one or more provisions (e.g., changing executors, altering the terms of a bequest, etc.), or it may completely change the majority or all of the gifts under the will. Each codicil must conform to the same legal requirements as apply to the execution of wills, such as the signatures of the testator and, typically, two or three (depending on the jurisdiction) disinterested witnesses.
In some states, a form of property ownership under which property acquired during a marriage is considered to be jointly owned by the spouses.
An individual or entity appointed by the courts to care for and manage the property of someone who is incapacitated.
Credit shelter trust
Yet another name for the “B” or “bypass” trust in an A-B trust arrangement.
“Crummey” withdrawal right
A provision in an irrevocable trust that allows a trust beneficiary to withdraw all, or some, of the assets contributed to the trust for a certain period of time after the contribution. Because the assets may be withdrawn, the contribution is treated as a “present interest” gift, qualifying for the gift tax annual exclusion. Usually the unstated plan is for the beneficiary to allow the withdrawal right to lapse, and the power is structured in such a way that that lapse will not be treated as the release of a general power of appointment, that is, as a gift by the beneficiary.
Someone who has died.
A bequest to be funded from a specified source, such as a bank or brokerage account. If the specified source no longer exists, for example the account has been closed , the demonstrative bequest is not adeemed, but becomes a general bequest.
Relatives by blood, or by legal adoption, who are “descended” from a decedent, including children, grandchildren, great-grandchildren, etc. Grandparents, parents, siblings, spouses, and cousins and other collateral relatives are not descendants, though they may be heirs. A stepchild will be a descendant only if she has been formally adopted by the decedent.
Durable Power of Attorney
A power of attorney (see definition below) that enables someone to handle your affairs if you become mentally incapable.
Everything that makes up your net worth — real estate, personal possessions, business interests, financial assets — essentially, everything of value that you own, minus any liabilities (such as remaining mortgage payments, credit card debt, loans, unpaid taxes, etc.).
The process by which a person decides on a strategy and creates a will, trust, and/or other legal agreement to provide for the administration and disposition of their assets if they become incapacitated, or upon their death
The “final tax,” which is levied against your transferred assets at death. There are both federal and state estate or inheritance taxes to consider.
Estate tax exemption amount
The aggregate amount that an individual can transfer, during life and at death, before incurring gift or estate taxes. Also called the “applicable exclusion amount” or the “unified credit equivalent.” Annual exclusion gifts do not count toward this total.
The person appointed under a decedent’s will to administer his or her estate. An “executor” is male; an “executrix” is female.
A bequest of a specified dollar amount, to be satisfied in cash.
Inheritance: The receipt of money or property from a decedent’s estate in the absence of a valid will, by virtue of a biological relationship to the decedent.
The purpose of guardianship designation is appointment of a responsible party to act on behalf of an estate owner or their spouse once they become incapacitated. A key estate document, notarized Designation of Guardianship is part of the comprehensive end-of-life and financial planning of an estate. Guardianship designation of a loved one or attorney, permits a responsible party to make direct medical informed consent and fiduciary decisions. The appointment of an estate owner or spouse’s guardian is often assisted by way of healthcare proxy directives. Such directives usually assign a physician the duty of diagnostic record of patient “incapacitation,” prior to the transfer or durable power of attorney to a designated agent.
Also called a health-care power of attorney. The designated person is authorized to make medical decisions on your behalf if you are unable to communicate those decisions yourself. A health-care proxy consults with a health care professional on decisions not covered in a living will.
A person who is designated under state intestacy laws to inherit property from a decedent.
Any noncash assets that cannot be easily sold.
The condition of having died without a valid will
A list of all the assets and property belonging to a decedent or a trust that is filed with the court.
A gift that cannot be changed or revoked.
A trust that cannot be modified or revoked by the settlor.
Irrevocable Insurance Trust
A trust designed to exclude insurance policy proceeds from a decedent’s gross estate. It cannot be modified or revoked.
Joint Tenancy With Right of Survivorship
An arrangement in which two or more people own equal portions of an entire asset. When one of the owners dies, their share passes to the other joint tenants.
- Assets or property left to the beneficiary of a will or trust.
- The mark someone leaves on the world after they are gone; something that reflects a person’s beliefs, values, and goals.
Letter of Intent
The last will and testament stipulating a person’s preferences for estate distribution of assets and real property when they die, specifies instructions for end-of-life financial planning for healthcare and other purposes, as well as transfer to heirs and beneficiaries when they die. A letter of intent (“LOI”) is a contract document that distills terms and conditions for estate plan distributions to heirs and beneficiaries. An LOI can serve to record transfers of property titles and other important transactions, not otherwise present within an estate’s trust account documents. Other issues described within a LOI are related to the location and disposition of personal effects, funerary planning wishes, and other financial details such as outstanding debts not accounted for in living trust documentation.
A document that details your final wishes and further explains the distribution of your will. It can also contain any final messages to family and friends While not a legal document, a letter of instruction can make the executor’s job easier by explaining your wishes in non-legal language. See also advance directive.
Someone who receives income or principal, for their lifetime, from a trust, annuity, or similar arrangement.
The rights of a Life Beneficiary to use a property for their lifetime, after which the title passes to the person or entity, such as a nonprofit, named as the owner when the life estate ends.
More technically called a “revocable” trust. A legal arrangement in which a designated person, called a trustee, is given responsibility for managing your assets for the benefit of your beneficiaries, during your life and after your death. The difference between a will and a living trust is that the trust bypasses probate, allowing the trustee to carry out your instructions as documented in your living trust at your death or if you become unable to manage your financial, healthcare, and legal affairs — for instance, in the case of a debilitating illness.
A federal estate and gift tax deduction that allows for the unlimited transfer of assets from one spouse to the other, without incurring gift or estate tax. The transferred assets will, however, be included in the taxable estate of the recipient spouse.
An irrevocable trust that allows for the tax-deferred transfer of assets to a surviving spouse. Also the “A” portion of an A-B Trust , created to benefit the surviving spouse. See also QTIP Trust
Minor, or Minor Child
A child who has not reached the Age of Majority as defined by state law in his or her state of residence.
Stocks, bonds, real property, and other tangible or intangible property that may be included in a bequest, but are not simple cash transfers.
An organization that exists for purposes other than generating profit, and which does not distribute income or assets to shareholders, members, directors, or officers. Typically used to refer to a tax-exempt charity, and included in numerous sections of the federal Tax Code, including Section 501(c)(3) (public charities, charitable nonprofits, and private foundations),
Section 501(c)(4) (social welfare organizations, homeowners associations, and volunteer fire companies), Section 501(c)(5) (includes labor unions), Section 501(c)(6) (includes chambers of commerce), and Section 501(k) (child-care organizations).
Non-Probate Transfer Vehicle
A mechanism for transferring ownership of money or property at death without the necessity of opening a probate estate. Examples include transfer on death designations on bank or brokerage accounts, beneficiary designations on insurance policies or qualified plans, and joint tenancies with right of survivorship.
Someone who does not reside in, and is not a citizen of, the United States.
No-Contest or In Terrorem Clause
A provision in a will or trust instrument that would revoke a gift if the beneficiary were to challenge the validity of the instrument.
Operation of Law
The manner in which some assets are distributed at death, based on state law or asset ownership, rather than the terms of a will or trust.
A designation that names a successor to ownership of a bank account at the primary account holder’s death. Sometimes called a Totten Trust.
A manner of distributing assets equally among members of a designated class, for example “descendants,”, regardless of how closely related they might be to the decedent. Compare “per stirpes.”
Percentage or Fractional Bequest
A bequest under a decedent’s will or revocable trust expressed in terms of a percentage or fraction of the residue, rather than as a dollar amount. A transferor who is worried about possible fluctuations in the value of his or her estate might choose to make a percentage bequest to a particular beneficiary, rather than a general bequest.
The administrator or executor of a decedent’s estate.
A manner of distributing assets according to a family tree. Each “branch” (children, grandchildren, etc.,) receives the same proportion of the total assets, regardless of how many members are in each branch, and each share is further subdivided at each generation among descendants in each branch. The term is from a Latin phrase that means “per branch.” Compare “per capita.”
A charitable gift that requires the participation of legal and/or financial planners to execute. Typically these involve larger amounts, and typically the benefit to charity takes effect at the transferor’s death. Examples include a charitable bequest under the transferor’s will or revocable trust, a charitable gift annuity, and a charitable remainder trust. Each of these allows the donor to continue to receive income from the transferred property during life.
Planned Gift Notification
The official heads-up to a nonprofit that a donor’s planned gift is coming to the organization. These notifications may not immediately include the exact value of the bequest, or other planned gift.
Pour Over Will
A Will that includes a provision that any assets that may not already have been transferred to the decedent’s revocable trust during life are to be distributed to that trust.
Power of appointment
A power granted in a will or trust giving the holder power to designate someone other than the “default”beneficiary to receive specified assets. The terms of the power may be general, allowing the assets to be distributed to anyone, including the holder; or more limited. The power need not be exercised. The idea is that in the future, the power holder may be in a better position to determine who should receive those assets. , or whether distribution should be outright or in further trust.
Power of Attorney
A legal document that grants one person, called the agent or attorney-in-fact, the power to act for another. The power of attorney grants limited or broad legal authority to an appointed agent to make legally binding decisions about property, finances or (in the case of an advanced directive) medical care. A power of attorney is used if someone is unable, through illness or disability, to make those decisions for himself or herself, or cannot be present to sign legal documents.
Assets held in a trust and used, according to the trust’s terms, for the benefit of the trust’s beneficiaries. The term is used to distinguish from “income.”
Private trust company
Another term for a family trust company : A vehicle used by high-net-worth families for their estate- and trust-planning needs.
The legal process of determining whether a purported will is valid. Also, the administration of a decedent’s estate.
A tax imposed in some states on property that passes under a decedent’s will or by a state’s intestacy law.
Anything that can be owned, including real estate, assets, intellectual property, rights, interests, and more.
Prudent Investor Act
A “uniform” law enacted in many states that requires fiduciaries to invest assets they hold in trust in the beneficiaries’ best interests.
Qualified Charitable Distribution
A provision in the federal tax Code allows a participant in a traditional IRA who is aged 70½ years or older to donate up to $100,000 per year directly from a taxable IRA to one or more qualified charities, rather than taking a taxable required minimum distribution. Because the QCD is not treated as income to the participant, there is no income tax charitable deduction.
Qualified Domestic Trust
A trust that allows assets passing to a surviving, non-U.S. citizen spouse to qualify for the estate tax marital deduction.
Qualified Personal Residence Trust
An irrevocable trust that passes title to a portion or all of the settlor’s residence to designated beneficiaries after a fixed term of years. If the settlor survives the term and continues to occupy the premises, he or she would pay fair market rent to the remainder beneficiaries The purpose of the arrangement is to discount the value of the remainder gift for gift tax purposes.
Qualified Terminable Interest Property Trust
A trust that qualifies for the estate tax or gift tax marital deduction by providing income to the spouse for life, but giving the spouse either no power to appoint the remainder or only a “limited” power.
Land, together with permanent fixtures, such as buildings.
A future interest that takes effect after a life estate or a term of years.
Required Minimum Distribution Minimum yearly withdrawals from a qualified retirement plan, including a traditional IRAs, that, as of 2020, are required to begin in the year the participant reaches age 72.
A person or entity authorized to act on an individual’s behalf. Executors and Trustees are representatives.
Donations that come from the “left over” assets from an estate. Some bequests detail that after the value of everything else is distributed, what remains goes to one or more charities or individuals, without listing a dollar amount or property details.
The assets or property that remain in a decedent’s estate after all the estate’s debts, taxes, and expenses are paid, and after all specific gifts have been distributed according to the will. Also called a residuary estate.
A donor might include detailed instructions for how a gift or bequest can be used by a nonprofit. If the nonprofit has accepted the gift or bequest subject to these conditions, the proceeds are treated as an “endowment,” or “restricted fund,” which the nonprofit can access only under limited circumstances.
A trust that the Grantor can terminate, revoke, modify, or amend.
Rules of Succession
State laws that determine who will inherit the estate of an individual who has died Intestate .
In a marriage, property or assets owned by just one spouse, such as property acquired before marriage and kept separate, or gifts or inheritance kept separate. Anything that is not considered separate property is considered Marital or Community Property.
An individual who establishes or settles a trust; also called a “Trustor ” or “Grantor .”
Special Needs Trust
A trust established for someone who is disabled. It allows trust assets to be used only for expenses that would not disqualify the beneficiary from receiving Medicaid or other need-based benefits.
A bequest of a specified item of tangible or intangible property, such as an heirloom, an artwork, or corporate stock. Compare “general bequest.”
A trust provision often used to protect assets from claims by creditors. It restricts voluntary and involuntary transfers of a beneficiary’s interest.
State Death Tax
A tax imposed by some states on the transfer of a decedent’s property. Also called an Inheritance Tax.
Step-Up In Basis
An adjustment to the income tax basis of property received from a decedent to its fair market value at the date of his or her death. If the asset has lost value during the decedent’s life, the adjustment may be downward, rather than a “step up.”
Tangible Personal Property
Items that can be touched and moved, such as artwork, jewelry, or cars—as distinguished from Intangible Personal Property . Tangible personal property does not include land or buildings, which are referred to as Real Property .
Tenancy by Entirety
Joint ownership of an asset by spouses in non-community property states, in which both own the asset equally. The asset may not be sold or gifted without the approval of both while both spouses are alive. When one spouse dies, the survivor succeeds to sole ownership.
Tenancy in commonOwnership of property by two or more owners, without a right of survivorship. Shares may be unequal, and each owner’s interest can be separately sold or mortgaged, without the consent of the other owner(s). At the death of each tenant, his or her share passes to his or her heirs or under the terms of his or her will.
A legal document such as a will that becomes effective at death.
A trust created by a will, which goes into effect after the will has been probated. As distinguished from a Revocable or Living Trust.
The individual whose property and assets are disposed of by a valid will. The female form of the word is sometimes rendered as “testatrix.”
Transfer on Death Designation
A beneficiary designation that passes ownership of financial assets, and in some states, real estate, at death to a named beneficiary without those assets entering probate. In the case of a bank account, also called a Payable on Death Designation.
A legal arrangement under which a third party, called a trustee, holds assets on behalf of one or more beneficiaries.
A legal document that dictates the terms of how the trust is to be managed and distributed.
The person or entity named in a trust to manage and administer trust property according to the terms of the trust. Also called a Fiduciary .
An individual who establishes or settles a trust; also called a settlor or grantor.
Another term for the Applicable Exclusion Amount .
Uniform Custodial Trust Act
In some states, a law that allows a trust to be created simply by registering assets in the name of someone who will serve as a custodial trustee for an adult or minor beneficiary. The statute itself sets forth the terms of the trust.
Uniform Gifts to Minors Act
A law enacted in all states that allows an irrevocable trust to be created for a minor beneficiary simply by creating a custodial bank or brokerage account for that beneficiary. The statute itself sets forth the terms of the trust.
When a competent adult is allowed to speak for and make decisions on behalf of an incapacitated or minor beneficiary, or as yet unborn and unascertained beneficiaries, of an irrevocable trust
A legal document that details the distribution of a decedent’s property to designated individuals or entitiesState law typically requires that a will signed by the testator in the presence of two witnesses who are not beneficiaries under the will. A will may designate the decedent’s preference for appointment of a guardian for his or her minor children, and the court will typically respect that preference.