Understanding estate planning terminology can help you make informed decisions about your legacy. This comprehensive guide explains key terms and concepts you'll encounter in the estate planning process.

A

Administrator A person appointed by the court to manage and distribute a deceased person's estate when no will exists or when the named executor cannot serve.

Advance Healthcare Directive A legal document that outlines your preferences for medical treatment and end-of-life care when you cannot communicate these decisions yourself. Often includes both a living will and healthcare power of attorney.

Annual Exclusion The maximum amount you can gift to an individual each year without triggering federal gift tax obligations. This amount is adjusted annually for inflation.

Asset Protection Legal strategies designed to safeguard your wealth from potential creditors, lawsuits, and other financial risks while maintaining control over your assets.

B

Beneficiary An individual, organization, or entity designated to receive assets, property, or benefits from a will, trust, insurance policy, or retirement account.

Bypass Trust A trust structure that allows married couples to maximize their estate tax exemptions by having assets "bypass" the surviving spouse's taxable estate while still providing them with benefits.

C

Charitable Remainder Trust (CRT) A tax-exempt trust that provides income to beneficiaries for a specified period, with the remaining assets ultimately going to designated charities.

Codicil A legal document that modifies or amends specific provisions of an existing will without requiring a complete rewrite of the original document.

Contingent Beneficiary A backup beneficiary who receives assets only if the primary beneficiary is unable to inherit (due to death, incapacity, or other disqualifying factors).

Credit Shelter Trust A trust designed to utilize both spouses' federal estate tax exemptions, allowing more wealth to pass to heirs tax-free. Also known as a bypass trust or family trust.

D

Deceased Spousal Unused Exemption (DSUE) The portion of a deceased spouse's federal estate tax exemption that can be transferred to and used by the surviving spouse, effectively doubling their exemption amount.

Digital Assets Online accounts, electronic files, and virtual property including social media profiles, email accounts, digital photos, cryptocurrency, and online financial accounts.

Durable Power of Attorney A legal document that authorizes someone to make financial and legal decisions on your behalf, remaining effective even if you become incapacitated.

Dynasty Trust A long-term trust designed to benefit multiple generations while potentially avoiding estate taxes at each generational transfer.

E

Estate The total value of all assets, property, and possessions owned by an individual at the time of their death, including real estate, investments, personal belongings, and business interests.

Estate Planning The process of arranging for the management and distribution of your assets during your lifetime and after death, including strategies to minimize taxes and protect beneficiaries.

Estate Tax A federal tax imposed on the transfer of wealth upon death, applicable only to estates exceeding the federal exemption threshold.

Executor The person named in a will to carry out the deceased's wishes, including managing the estate, paying debts and taxes, and distributing assets to beneficiaries.

F

Family Limited Partnership (FLP) A business structure that allows family members to transfer assets while maintaining control and potentially reducing gift and estate taxes.

Fiduciary An individual or institution legally obligated to act in the best interests of another party, such as a trustee managing trust assets for beneficiaries.

Funding a Trust The process of transferring ownership of assets from your individual name to your trust, making the trust the legal owner of those assets.

G

Generation-Skipping Transfer Tax (GSTT) A federal tax on transfers of assets to beneficiaries who are two or more generations younger than the donor, such as grandchildren.

Gift Tax A federal tax on transfers of money or property during your lifetime that exceed the annual exclusion amount or lifetime exemption.

Grantor The person who creates and funds a trust. Also known as the settlor, trustor, or creator.

Guardian A person legally appointed to care for minor children or incapacitated adults, responsible for their personal well-being and daily decisions.

Guardianship A legal relationship where a court appoints someone to make personal and sometimes financial decisions for a minor child or incapacitated adult.

H

Healthcare Power of Attorney A legal document that designates someone to make medical decisions on your behalf when you cannot communicate or are incapacitated.

Heir A person legally entitled to inherit assets from someone who dies without a will, typically determined by state intestacy laws.

HIPAA Authorization Permission that allows designated individuals to access your protected health information under the Health Insurance Portability and Accountability Act.

I

Incapacity The inability to make informed decisions due to mental or physical impairment, illness, or injury.

Income Tax Taxes owed on income generated by assets, which may affect both the estate and beneficiaries depending on the timing and structure of distributions.

Inheritance Tax A state tax imposed on beneficiaries who receive assets from a deceased person's estate (different from estate tax, which is paid by the estate itself).

Intestate The legal status of dying without a valid will, resulting in asset distribution according to state intestacy laws.

Irrevocable Trust A trust that cannot be modified, amended, or terminated without beneficiary consent once established, often providing tax advantages and asset protection.

J

Joint Tenancy A form of property ownership where two or more people own equal shares with rights of survivorship, meaning the surviving owner(s) automatically inherit the deceased owner's share.

Joint Will A single document that serves as the will for two people, typically spouses, though generally not recommended due to legal complications.

L

Legacy The values, assets, and impact you leave behind for future generations, encompassing both financial inheritance and personal values.

Life Insurance Trust An irrevocable trust designed to own life insurance policies, potentially removing the policy proceeds from your taxable estate.

Living Trust A trust created during your lifetime that can be revocable or irrevocable, allowing you to transfer assets while potentially avoiding probate.

Living Will A document that specifies your wishes regarding life-sustaining medical treatment in terminal conditions or persistent vegetative states.

Long-Term Care Insurance Insurance coverage designed to pay for extended care services, protecting your estate from the potentially devastating costs of chronic illness or disability.

M

Marital Deduction An unlimited federal estate and gift tax deduction for transfers between U.S. citizen spouses, allowing tax-free transfers during life and at death.

Minor A person under the legal age of adulthood (typically 18 or 21, depending on state law) who cannot legally own substantial assets or make binding legal decisions.

P

Per Capita A method of distributing assets where each beneficiary within a generation receives an equal share, regardless of their family line.

Per Stirpes A distribution method where assets are divided by family lines, with descendants taking their deceased ancestor's share.

Personal Representative Another term for an executor or administrator - the person responsible for managing and settling an estate.

Pour-Over Will A will that transfers any assets not already in a trust to that trust upon death, ensuring comprehensive asset management through the trust structure.

Power of Attorney A legal document authorizing someone to act on your behalf in legal, financial, or medical matters when you cannot do so yourself.

Probate The court-supervised legal process of validating a will, settling debts, and distributing assets after someone's death.

Q

Qualified Personal Residence Trust (QPRT) A trust that allows you to transfer your residence to beneficiaries at a reduced gift tax value while retaining the right to live in the home for a specified period.

Qualified Terminable Interest Property Trust (QTIP) A trust that allows assets to qualify for the marital deduction while giving the first spouse control over the ultimate distribution of assets.

R

Remainder Beneficiary The person or entity that receives trust assets after the income beneficiary's interest ends.

Revocable Trust A trust that can be modified, amended, or terminated by the grantor during their lifetime, offering flexibility and probate avoidance.

Right of Survivorship A property ownership feature where surviving owners automatically inherit a deceased owner's share without going through probate.

S

Settlor Another term for the grantor - the person who creates and initially funds a trust.

Spousal Lifetime Access Trust (SLAT) An irrevocable trust where one spouse creates a trust for the benefit of the other spouse and their descendants, providing potential tax benefits while maintaining indirect access to trust assets.

Successor Trustee The person or institution designated to take over trust management when the original trustee can no longer serve.

T

Tangible Personal Property Physical items of personal property such as jewelry, artwork, furniture, vehicles, and collectibles that have sentimental or monetary value.

Testamentary Trust A trust created through a will that only becomes effective after the will-maker's death.

Testator A person who creates a will and has the legal capacity to make testamentary dispositions.

Trust A legal arrangement where one party (trustee) holds and manages assets for the benefit of another party (beneficiary) according to specific terms and conditions.

Trustee The person or institution responsible for managing trust assets and carrying out the trust's terms for the benefit of the beneficiaries.

U

Unified Credit The federal tax credit that effectively exempts a certain amount of wealth from estate and gift taxes during lifetime and at death.

Uniform Transfers to Minors Act (UTMA) A law that allows assets to be transferred to minors through a custodial account, with the custodian managing the assets until the minor reaches the age of majority.

W

Will A legal document that specifies how your assets should be distributed after death and can name guardians for minor children and an executor for your estate.

Will Contest A legal challenge to the validity of a will, typically based on claims of lack of capacity, undue influence, fraud, or improper execution.

This glossary provides general information and should not be considered legal advice. Estate planning laws vary by state, and individual circumstances may require specific professional guidance.