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Estate Glossary Administrator: Person named by the court to represent the estate when there is no will or the will did not name an executor; also called a "personal representative." Applicable Credit Amount: The Applicable Credit Amount, previously known as the Unified Credit is the tax credit mechanism that effectively exempts the Exemption Amount of an estate from estate taxes. For example, in 1999 $650,000 of a decedent's estate will be exempted from estate taxes. The Applicable Credit Amount for $650,000 is $211,300. When the decedent's estate tax return is filed, the preparer first calculates the amount of tax based on the total value of the net estate, and then subtracts the Applicable Credit Amount to reduce or eliminate the amount of estate tax otherwise due. Beneficiary: The person and/or organization who obtains the benefits of the trust. Bypass trust: A trust which is set up to bypass the surviving spouse's estate, thereby allowing full use of the applicable exclusion amount for both spouses. Charitable trust: An irrevocable trust where the current or future beneficiary is a charitable organization [as defined under IRS Section 501(c)(3)]. These trusts can offer significant income tax, estate tax and capital gains tax benefits. Codicil: A written change or amendment to a will. Community Property: A form of ownership between a husband and wife, available only in certain states. Laws vary from state to state, but the basic rule is that all property earned or acquired by either spouse during marriage (except for gifts or inheritances received by either spouse as his or her separate property) is treated as owned one-half by each spouse. Each spouse has the right to dispose of his or her one-half of the community property by Will, subject to applicable probate requirements. Even though only the deceased spouse's one-half is subject to estate tax, both halves will receive a step-up in basis for federal income tax purposes. Conservator: An individual appointed by the court to administrate the affairs of an incapacitated adult. Credit shelter trust: See bypass trust. Designated Beneficiary Plan: (Also known as Pay on Death Account, Transfer on Death Account or Totten Trust.) This allows you to choose your beneficiaries and specify what percentage of your account assets will be left to each one. Assets passed in this way will avoid the probate process. Estate tax: A transfer tax imposed on the value of property left at death; often called an inheritance tax or death tax. Executor: The person or institution named in a will who is responsible for the management of the assets and the ultimate transfer of the property; also commonly referred to as a "personal representative." Exemption Amount: This is the equivalent amount of assets that can be transferred free of tax, either at lifetime or death, by applying the Applicable Credit Amount when calculating estate and gift taxes. Gift tax: A tax imposed on transfers of property by gift during the donor's lifetime. See Gift Tax Exclusion below. Gift tax exclusion: Federal law permits you to make tax-free gifts of up to $10,000 per individual each year. Married couples may jointly give tax-free gifts of up to $20,000 per individual per year. Starting in 1999, these amounts will be indexed annually for inflation. You may make these gifts to as many individuals as you want in a given year. Gifts made under this provision do not count against your Exemption Amount. If, however, during your lifetime you gift more than $10,000 per individual per year, the amount in excess of $10,000 per year to that individual will be deducted from your Exemption Amount available at your death. Guardian: One who is legally responsible for the care and well-being of a minor. Appointed by a court, the guardian is under court supervision. Intestate: Having made no valid will. Irrevocable trust: A trust which the trustor does not have the power to revoke or amend. Joint Tenants with Rights of Survivorship: A form of joint ownership in which two or more individuals own an interest in the same property. At the death of one individual, ownership of the decedent's share tranfers equally to the surviving owners. Assets transferred in this way avoid probate. Life insurance trust: This is an irrevocable trust which is generally established for the purpose of excluding life insurance proceeds from the estate of the insured and the spouse of the insured for death tax purposes. Living (intervivos) trust: A trust created by a written legal document which is created during the lifetime of the trustor. Very often, this will be a revocable living trust, which will be used as the ultimate vehicle for the distribution of the trustor's assets when the trustor dies. Marital deduction: This is an estate and gift tax deduction which is available for transfers between spouses, either during lifetime or at death; under federal law there is a complete interspousal exemption from transfer tax for qualifying transfers. Pour-over will: A will which is used in conjunction with a revocable living trust to "pour over" any assets which are not transferred to the trust prior to death. Probate: Probate is a court process that validates a person's will and oversees the distribution of assets subject to the terms of the will. If a person dies without a valid will (intestate), the probate court will apply applicable state law to determine the estate's beneficiaries. The estate executor and attorney are eligible to receive fees for administering the estate through the probate process. Probate fees, and the time associated with the court process, vary by state and by the size of the estate. The probate court is a public process and estates that pass through the court will be a matter of public record. Qualified terminable interest property ("QTIP") trust: A terminable interest that will qualify for the marital deduction if an appropriate election is made by the donor or executor. This type of vehicle is frequently used to avoid any transfer tax upon the death of the first spouse. It provides the surviving spouse with all income from the property (and access to the principal, under certain conditions) during his or her life, but it enables the deceased spouse to retain control over the ultimate disposition of the property. Revocable trust: A trust plan that gives the grantor the power to alter the trust terms or revoke the trust. Tenancy-in-common: A form of joint ownership in which two or more persons own interest in the same property. At the death of a tenant-in-common, ownership transfers to that person's designated beneficiaries or heirs, not to the other joint owner(s). Testamentary trust: A trust set up in a will that only takes effect after death. Trust: A legal arrangement in which one person (the trustor) transfers legal title to property to a trust and names a fiduciary (the trustee) to manage the property for the benefit of a person or institution (the beneficiary). Trustee: The person or institution who manages property according to the instructions in the trust agreement. Trustor: The individual who establishes a trust; also can be referred to as the "settlor" or the "grantor." Unified Tax Credit: Former term used to describe the combined estate and gift tax credit that permits the transfer of assets free of tax either during lifetime or at death. In accordance with the Taxpayer Relief Act of 1997, the Applicable Credit Amount, and the corresponding Exemption Amount, gradually increase, so that by the year 2006, the first $1 million of assets transferred either during lifetime or at death will be exempt from tax. See also Applicable Credit Amount. Will: A legally binding document directing the disposition of one's property, which is not operative until death and can be revoked up to time of death or until there is a loss of mental capacity to make a valid will. • Visit our Acclaimed Estate Planning Education
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