Glossary

Estate Planning Definitions

The following is a glossary of some terms to assist in understanding how estate planning can assist you accomplish your estate planning wishes: Download a Printable Glossary (PDF)

Bypass Trust (also called a Credit Shelter Trust or Exemption Trust or Trust "B"):
An irrevocable trust, used by a Family Trust for a husband and wife, which is automatically set upon the death of the first spouse to pass away with the purpose to (1) "bypass" the estate tax, by using the estate tax exemption amount of the first spouse to pass away; and (2) preserve the remainder wishes of the first spouse to pass away.

Community Property (CP):
A form of ownership allowed only between husband and wife, and allowed only in "community property states". The general rule is that all property earned during marriage (except by gift of inheritance as his or her separate property) by either spouse during marriage is treated as owned one-half by each spouse. Each spouse has the right to dispose of his or her one-half of the CP by will or by trust.

Conservator:
An individual appointed by the probate court to manage the affairs of an incapacitated adult. A conservatorship can be costly on an ongoing basis. A Durable Power of Attorney can avoid the need for a conservatorship.

Durable Power of Attorney for Asset Management (DPOA-AM):
A legal document whereby an individual names an agent, also called an "attorney-in-fact" to act for him or her in the event that he or she becomes incapacitated. After a person passes away, this document is VOID. 

Durable Power of Attorney for Health Care (DPOA-HC):
A document similar to a DPOA-AM, but names an agent to make medical decisions, rather than financial decisions. After a person passes away, this document is VOID.

Estate Tax:
A transfer tax imposed upon the value of property left at death. The IRS allows each person to transfer a certain amount of property tax-free, called an estate tax exemption amount.

Estate Tax Return:
IRS Form 706 required to be filed by an individual who passes away with a gross estate equal to the applicable estate tax exemption amount. Because of debts and expenses and the marital deduction, it is possible for a deceased individual to be required to file and estate tax return, but have no estate tax liability.

Gift Tax:
A tax imposed upon transfer of property by gift during the donor's lifetime. Each person has an annual gift tax exemption amount to give per donee. If an individual's annual gifts do not fall within this exemption, a gift tax return (IRS Form 709) is required to be filed.

Guardian:
One who is legally responsible for the care and well-being of a minor (for California, a child under the age of 18 years). A guardian is nominated in a Will and appointed by the probate court.

Heirs-at-Law:
Closest living relative per the California Probate Code. 

Intestate:
Having no valid Will. (Conversely, testate means having a valid Will.)

Pour-Over Will:
A will is a legally binding document directing the disposition of one's property, which is not operative until death and can be revoked up to the time of death or until there is a loss of mental capacity to make a valid will. A pour-over will is used in conjunction with a revocable family trust to "pour over" any assets which are not transferred to the trust into the trust. An EXECUTOR is the agent of the Will. An "amendment" to a Will is called a CODICIL. 

Probate:
A public court process to oversee the identification of beneficiaries and distribution of assets of a deceased person's estate. Probate proceedings are typically lengthy, structured and very formal. It would not be unusual for a "simple probate" (i.e., home as only asset) to take 9 months to 1 year to complete. 

Revocable Trust (Inter Vivos Trust or Living Trust):
A trust plan that gives the settlor (i.e., creator of the trust) the power to change the terms or revoke (i.e., destroy) the trust. To be effective, title to bank accounts and non-retirement assets must be changed to reflect the trust as owner. The person who manages the trust is the TRUSTEE.

Settlor:
The person who establishes the revocable trust. Also called a trustor or grantor.

Trust Administration:
A non-court process which accomplishes the same purpose as Probate, i.e., to settle estate debts and collect, value and distribute assets of a deceased person's estate to the rightful beneficiaries. However, the trust administration is private, and can be accomplished in a less structured fashion and in most cases, no court filing fees. The person who manages the trust administration is the TRUSTEE.

Unlimited Marital Deduction:
A tax deduction which is available for transfers between spouses, usually from a deceased spouse to a surviving spouse. In this case, the unlimited marital deduction serves to postpone the imposition of estate tax until the surviving spouse's passing.