Appendix A

Glossary

administrator:
A person appointed by the probate court to administer the estate of a decedent when the decedent left no valid will.
amortization:
Reducing the cost of an intangible asset over its projected life.
ancillary administration:
Separate probate of real property in the jurisdiction in which it’s located.
annual account:
All of a trust or estate’s activity for a 12-month period.
annuity:
Income paid in a series of payments.
applicable exclusion amount:
The total amount exempted from gift and/or estate tax.
applicable federal rate (AFR):
The minimum interest rate you must charge on a loan in order for it to be considered fair market rate.
assets:
Items of value owned by any entity, whether an individual, corporation, partnership, trust, or estate.
basis:
The acquisition cost of any asset.
beneficial interest:
The right to receive some benefit, profit, or distribution from a trust.
beneficiary:
The person or entity receiving a benefit from an estate or trust.
bequest:
A legacy or gift of personal property by will.
bill:
Any short-term loan packaged as an investment product and issued with a maturity of one year or less.
bond (fixed-income securities):
Any long-term loan packaged as an investment product and issued with a maturity of more than ten years.
by right of representation:
See per stirpes
Charitable Lead Annuity Trust (CLAT):
A trust that makes a fixed number of annual payments, calculated as a percentage of the asset value as of the date of the grantor’s gift into the trust, to charity. At the end of the lead period, the remaining assets are distributed to non-charitable remaindermen.
Charitable Lead Unitrust (CLUT):
A trust that makes a fixed number of annual payments to charity, calculated on a percentage of the assets valued on the second business day of each year. At the end of the lead period, the remaining assets are distributed to non-charitable remaindermen.
Charitable Remainder Annuity Trust (CRAT):
A trust where the grantor receives fixed payments for life, calculated as a percentage of the asset value as of the date of grantor’s gift into the trust. At grantor’s death, the remaining assets are distributed to charity.
Charitable Remainder Unitrust (CRUT):
A trust where the grantor receives payments for life, calculated annually based on a percentage of assets valued, usually on the second business day of each year. At grantor’s death, the assets remaining are distributed to charity.
children’s trusts:
Trusts created to benefit grantor’s children. Often used to provide the grantor with the ability to control children’s inheritances even after death. Sometimes distributable as a child reaches a certain age.
churn:
To buy and sell securities frequently with the sole intention of earning more commissions.
codicil:
A change to a will, executed with all the formalities of a will. Usually located with the decedent’s last will.
community property:
Property acquired by either spouse during the course of a marriage in a state whose laws recognize community property.
common law:
Law deriving from court decisions and ancient usages and customs, as opposed to statutory law, created by legislatures.
conservator:
Similar to a guardian, but with less-restrictive rules.
consideration:
A benefit that must be bargained for between parties as an essential reason for the parties to enter into a contract.
corpus:
Principal or body of the trust.
credit shelter trust:
The trust that holds the amount of assets equal to the remaining applicable exclusion amount.
Crummey trust:
A trust structured to create a brief window of time for a present interest of gifts to the trust so that no gift tax will be payable on annual exclusion gifts to the trust.
curtesy:
The right of a widower, under common law, to a life estate in the decedent’s real estate. Abolished in many states.
CUSIP number:
The nine-digit identifier for a marketable security, issued by the Committee on Uniform Security Identification Procedures.
death tax:
Common nickname for a tax on the value of all of the decedent’s property at date of death. More properly referred to as an estate tax.
decedent’s estate:
The property owned by the decedent on his or her date of death. Has different meanings for both probate and estate tax purposes.
declaration date:
The date a corporation declares (announces) it will be paying a dividend.
delivery instructions:
The specific routing and account numbers necessary to send cash and/or securities from one bank or brokerage to another.
depletion:
A reduction in value of an asset as that asset is used up.
depreciation:
Recovering an asset’s value ratably over its useful life.
devise:
Term describing how real property is left by will.
direct skip:
A transfer of property from grandparent to grandchild, bypassing the grandparent’s surviving child.
disclaim:
To refuse to accept a bequest or devise before it’s received.
domicile:
Legal home or residence.
donee:
Person receiving a gift of property.
donor:
Person making a gift of property.
dower:
A provision of state law in some states that gives a widow (and sometimes a widower) a life estate in a portion of the real estate owned by the decedent, based in common law.
dynasty trust:
A trust lasting for several generations that provides protection from both the generation-skipping transfer tax and from creditors.
Electing Small Business Trust (ESBT):
A trust that may make an election in order to own stock in a Subchapter S corporation.
Enrolled Agents:
Tax professionals licensed by U.S. Department of the Treasury.
equities:
See stocks
executor:
The person named in the will to carry out the decedent’s wishes.
executor’s bond:
A written promise to faithfully carry out the executor’s duties.
face amount:
Amount of money a bond issuer pays a lender at maturity.
family pot trust:
Trust where the trustee has discretion to distribute income and (in accordance with the terms of the trust) principal to any or all of the named beneficiaries — typically the decedent’s spouse and descendants.
family trust:
See credit shelter trust
family trustee:
A trusted member of a grantor’s family or a family friend.
fee simple:
Absolute ownership of real property, but limited by the four basic government powers of taxation, eminent domain, police power, and escheat. May also be limited by certain obstructions or a condition in the deed.
fiduciaries:
People to whom property is entrusted by one person for another’s benefit. Includes executors, administrators, personal representatives, trustees, guardians, and conservators.
fiscal year-end:
Ending a tax year at the end of any month except December.
fixed income securities:
See bill; bond; notes
funded trusts:
Trusts that hold assets.
general power of appointment:
The power of the trust beneficiary to appoint all or any of the trust property to anyone he or she chooses, including himself or herself, or his or her estate, at any time during his or her lifetime, or upon his or her death.
grantor:
The person who creates the trust. See also settlor
Grantor-retained Annuity Trust (GRAT):
A trust into which the grantor transfers property and receives a scheduled and fixed payment from it based on a percentage of the initial value of the transfer for a period of years.
Grantor-retained Income Trust (GRIT):
A trust into which the grantor transfers assets while retaining income earned by those assets for a period of years. At the end of the period, the assets either distribute to the beneficiaries or remain in trust for the beneficiaries’ benefit.
Grantor-retained Unitrust (GRUT):
A trust into which the grantor transfers assets while retaining the right to receive an annual payment from the trust for a period of years. Payment calculated is a percentage of the annual asset valuation, usually done on the second business day of each calendar year.
gross estate:
The total value of all the decedent owned at his or her date of death.
guardian:
A person appointed by the probate court to take care of another and his or her property when the property owner is deemed incapable of taking care of his or her own affairs because of age (in the case of a minor) or for other reasons such as mental illness, mental retardation, physical incapacity, or illness.
guardian ad litem:
A guardian appointed by the probate court for a particular matter in order to protect the beneficiary’s interest.
heirs-at-law:
Persons who inherit a decedent’s estate under state statutes of descent and distribution if the decedent died intestate.
high yield bonds:
See junk bonds
incidents of ownership:
Having the right to name or change the beneficiary of a life insurance policy, to assign the policy to another or revoke the assignment, to surrender or cancel the policy, and to pledge the policy as collateral for a loan, or to obtain a loan against the surrender value.
income:
Everything earned by the principal of the trust other than capital gains and extraordinary dividends.
independent trustees:
Fiduciaries who have no interest in the trust grantor, the trust beneficiaries, or the trust remaindermen.
inheritance tax:
Tax on the amount inherited by a particular beneficiary rather than the estate as a whole.
inventory:
A list showing a trust or estate’s beginning assets, including the starting basis for each asset.
intangibles:
Assets that you can’t readily hold in your hand, such as stocks and bonds.
intangibles tax:
A tax on certain intangible assets.
inter vivos trust:
A trust created by trust instrument during a grantor’s lifetime.
intestate:
When a decedent dies and leaves no valid will.
irrevocable trust:
A trust where the governing instrument may not be revoked or changed, even by the grantor.
issue:
All persons who have descended lineally from a common ancestor.
joint tenancy with right of survivorship:
Title passes automatically to surviving joint tenant(s) on the death of one.
junk bonds:
Corporate or government bonds paying a high rate of interest, where the debtor may be judged to be in danger of defaulting on the debt.
legacy:
A bequest or gift of personal property by will.
life estate:
Right to use property and receive any income it earns for the remainder of the tenant’s life.
limited power of appointment:
The right of a trust beneficiary to designate, from a group of specified appointees (usually the grantor’s children and grandchildren, or charities), who may receive trust assets either at any time or after the death or other termination of the beneficiary’s interest.
living trusts:
Trusts created (and sometimes funded) during the grantor’s life.
load:
Sales charges paid by investors to purchase mutual fund shares.
marital trust:
A trust for the benefit of the surviving spouse, typically funded by a formula that takes full advantage of the marital deduction to avoid paying any federal estate tax at the first spouse’s death.
mean:
Average. Also your older brother when he held you down and tickled you until you almost wet your pants.
municipal bonds:
Bonds issued by states, cities, and towns. The interest earned is typically tax exempt.
net income:
All income (excluding capital gains and principal dividends) minus expenses (such as the trustee’s and tax preparer’s fees) paid from income.
nominee trust:
A trust in name only, designed to own real estate and allow the owner of the beneficial interest in the trust to keep his or her name off the property deed, out of the local Registry of Deeds, and out of public view.
notes:
Any loan packaged as an investment product with a maturity of more than one year but not more than ten years.
original will:
The only signed copy of a will at any given time.
paid-up policy:
A life insurance policy on which all the premiums have been paid. The policy remains in force until the insured’s death.
payable on death (POD) account:
See Totten Trust
payment date:
Date a stock dividend is paid to shareholders of record.
per capita:
Divided equally among the total number of persons.
per stirpes:
When a named beneficiary predeceases the testator, that beneficiary’s share divides equally among his/her children, so that the issue of a deceased child receive equally divided portions of that child’s share and so on. Also known as by right of representation.
personal property:
Any tangible property that can be physically moved.
personal representative:
A general term for executor and administrator.
power of appointment:
The power to decide who will be the ultimate owner, or have the enjoyment of, any or all of the property of a trust (and when).
power to revoke:
The ability to alter, amend, or terminate a legal document or the enjoyment of property transferred.
prefunded:
The issuing authority has the option of paying off the loan early.
present interest:
Having all right, title, and interest in property when given.
pretermitted heir:
A child, whether born before or after the testator’s death, or descendant of a deceased child of the testator who is unintentionally omitted from the will.
principal:
The assets owned by a trust. See also corpus
probate:
The process by which a decedent’s will is proved to be valid or invalid and the estate is administered and settled after death.
probate estate:
Property subject to court supervision; assets held in the decedent’s name alone at the date of death or payable to the estate, or held jointly only for the decedent’s convenience.
property subject to claims:
Assets available to pay the decedent’s creditors.
prospectus:
A brochure created by every mutual fund that details the fund’s governing rules and lists a sample investment portfolio for the fund.
qualified heirs:
Certain close family members, defined by state statute.
Qualified Personal Residence Trust (QPRT):
A trust into which the grantor transfers a home while retaining the right to live there, rent free, for a period of years.
Qualified Subchapter S Trust (QSST):
A trust that is allowed to own stock in Subchapter S corporations.
qualified terminable interest property (QTIP):
A trust that typically pays all net income (but only a limited amount of principal) to the surviving spouse, with no power of appointment.
quasi-community property:
Property acquired by either spouse in a non-community property state that would have been community property had the couple resided in a community-property state.
real property:
Land and land improvements, including all buildings.
reciprocal will:
Will written by one spouse, giving all (less bequests of specific personal property) to the other, mirroring the other spouse’s will.
record date:
Day on which stockholders must own shares to receive a dividend.
remainderman:
The person entitled to a future interest (called a remainder) in property in a trust (pl. remaindermen).
residuary devisee:
A person or entity named to receive all the real property not specifically devised.
residuary legatee:
A person or entity named to receive all the personal property not specifically bequeathed.
return of capital:
When payment is received that reduces an asset’s acquisition costs because some part of what was originally owned no longer exists.
reversionary interest:
The right to the return of property that the transferor has temporarily transferred to or for the benefit of another person.
revocable trust:
A trust that can be amended, revoked, or terminated at any time prior to the grantor’s death by the grantor. Also known as a revocable living trust.
separate property:
Assets owned prior to marriage, inherited or received as a gift during marriage, or earned after separation in a community-property state.
settlor:
The trust’s creator. See also grantor
short year:
A tax year consisting of fewer than 12 months.
signature guarantee:
A stamp or seal from a commercial bank or stock brokerage, validating a signature.
single premium life insurance:
A policy purchased with one premium.
situs:
Where the property is treated as being located for legal purposes.
small business stock:
Stock from a closely held corporation.
socially responsible investing:
An investment strategy that integrates social or environmental criteria into financial analysis.
special (extraordinary) dividends:
The corporation has issued a larger than ordinary slice of the corporate profits.
special power of appointment:
Any power that can’t be exercised in the manner described for a general power of appointment.
specific devisee:
A person or entity named to receive specific real property under a will.
specific legatee:
A person or entity named to receive designated personal property under a will.
spendthrift trust:
A trust that gives absolute control of the income and principal to the trustee to prevent the beneficiary from squandering money.
split interest charitable trust:
A trust where the grantor retains either a lead or remainder interest in the trust property, with the opposite interest (lead or remainder) going to charity.
statutory share:
The share an heir is entitled to under state law if the decedent left no valid will.
stocks (equities):
Ownership interests in corporations.
street name:
Ownership records of marketable securities maintained by brokerage firms rather than by individual corporations. Owners receive regular statements of their holdings rather than individual certificates.
Subchapter S corporation:
A small corporation that pays no corporate income tax but rather distributes all items of income and deduction directly to the shareholders, who then must pay applicable income taxes.
taking against the will:
Surviving spouse’s election to receive a share of estate as determined by state spousal share laws rather than by decedent’s last will.
tenancy by the entirety:
Title passes automatically to the surviving joint tenant, who can only be a surviving spouse.
tenancy in common:
Each tenant holds property with other tenants in common but none have rights of survivorship in each others’ shares.
term insurance:
Insurance that provides coverage for a set period and builds no cash value. The premium generally increases with age.
testamentary trust:
A trust that is contained in the decedent’s will.
testate:
When a decedent dies leaving a valid last will.
testator:
A person who has a will.
Totten trust:
A bank or brokerage account opened by a grantor, using specific language that transfers ownership at the grantor’s death directly to a named successor. See payable on death (POD) account
trust:
A legal entity that holds assets for the benefit of a person or entity.
trust accounting income:
The net income less expenses paid from income.
trust instrument:
The legal document (other than the Last Will) created by the grantor during life that contains all the provisions of the trust.
trustee:
A person, bank, or trust company that holds and administers the assets of a trust for the benefit of another.
U.S. Treasury obligations:
Loans issued by the U.S. Treasury in the form of bills, notes, or bonds. Interest is taxed federally but exempt in every state.
unlimited marital trust:
A trust set up for the benefit of the surviving spouse, who receives the net income plus whatever principal he or she desires, and over which he or she may have a general power of appointment.
usufruct:
The temporary right to the use and enjoyment of another’s property.
variable universal life insurance:
Similar to whole life insurance except you may invest cash value in the policy in mutual funds offered by the insurance company. The rate of return depends on success of those investments.
whole life insurance:
A life insurance policy where the portion of premiums not used to purchase term life coverage is invested by the insurance company, providing the policy owner with a stated rate of return.
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