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GERALD L. BOHART, A.P.C.
9988 Hibert Street, Suite 208
San Diego, CA 92131
Tel: (858) 536-5500
Fax: (858) 566-0238
gbohart@bohartlaw.com




Estate Planning


[   Introduction   |   Wills & Trusts   |   Estate Planning Terms   |   Getting Started   ]


Estate Planning Terms

A/B trust - A trust used for married couples to help minimize their estate's exposure for estate tax. When a family trust contains an A-B provision, two sub-trusts are created upon the first trustor's death; an "A trust" or "survivor's trust" and a "B trust" or "bypass trust".

Administrator - A person appointed by the probate court to administer the estate of a person who has died without a valid will.

Advance health care directive - A document wherein a person (the "principal) authorizes another person to act as his/her agent to make health care decisions in the event of the principal's incapacity.

Agent - A person who is given authority to act for another person known as the "principal".

Ancestor - A person who precedes another in the line of descent (e.g., mother, grandmother, etc.).

Attest - To witness or bear witness to.

Attorney-at-law - A person legally qualified and authorized to act on behalf of another person in court and other legal proceedings.

Attorney-in-fact - A person (agent) who is authorized by another person (principal), typically in a power of attorney, to conduct business for and/or on behalf of the principal.

Basis of property - The value used to determine gain or loss for income tax purposes. The basis may be cost or a different amount, depending on the law affecting the transaction.

Beneficiary - A person that receives the benefit of a transaction, (e.g., a life insurance policy). A person for whose benefit a trust is created or who is named to receive gifts under a will. A beneficiary need not be a descendant or heir.

Bequest - Typically refers to a gift made under a will. Sometimes "bequest" is used interchangeably with "devise."

Bypass trust - A sub-trust created following the death of a co-trustor spouse. The assets placed into the bypass trust or "B trust" are considered to be part of the decedent spouse's estate and not that of the surviving spouse. This helps to minimize exposure for estate tax.

CMIA - California Confidentiality of Medical Information Act, California Civil Code section 56 et seq.

Codicil - An amendment or supplement to a will that may modify or revoke provisions in the will. The codicil is a separate document that is signed with the same formalities as a will.

Community property - Real or personal property that is owned in common by a husband and wife. Either spouse has management and control of the community property. Generally speaking, all income earned during marriage and all property acquired from those earnings during marriage are community property. Property acquired by gift or inheritance is not community property but "separate property." Spouses can by written agreement change the character of property from separate to community and vice versa. Separate property may also become community property if it is commingled with community assets.

Conservator - A person who may be appointed to care for the person or property or both of an incompetent adult, or for the person of a married minor.

Descendant - A person who is descended in a direct line from another (e.g., a child or a grandchild). "Descendant" is sometimes used interchangeably with "issue."

Devise - A gift made under a will.

Devisee - A person who receives a gift under a will.

Disclaimer - An unqualified refusal to accept a gift whether made under a will, trust or joint tenancy.

Donee - The recipient of a gift.

Donor - One who makes a gift.

EGTRRA - Economic Growth and Tax Relief Reconciliation Act of 2001.

Escheat - The reversion of a person's property to a governmental entity, usually a state, when a person dies intestate (without a will) leaving no heirs capable of inheriting the decedent's property.

Estate - A general term used to describe a person's real and personal property, less any encumbrance and debts.

Estate taxes (federal) - The death taxes imposed by the federal government on the transfer of assets on death. The taxes are generally paid by the executor of the estate out of estate assets.

Executor - A person nominated in a will by a testator (creator of a will) to take care of the testator's property after death. Executors may also be called a "personal representative". The executor is appointed by the probate court to administer the estate of a person who has died leaving a valid will.

Executrix - The term historically used for a female executor. The term "executor" is now used for both male and female personal representatives in probate.

Exemption amount - The amount of assets that a person may transfer free from transfer tax. The "exemption amount" is referred to by the IRS as the "applicable exclusion amount". In 2004 the exemption amount is $1,500,000.

Exemption equivalent - A unified tax credit is deducted from any estate tax owed. This credit is the tax equivalent of the deduction from the gross estate of an amount called the exemption equivalent.

Fiduciary - A person charged with the duty of trust on behalf of a beneficiary. Executors and trustees are fiduciaries.

Generation-skipping tax - A tax imposed on transfers to successive generations of beneficiaries. The tax is now imposed on direct transfers to grandchildren, after deducting the appropriate exemption.

Gift tax annual exclusion - In 2004 federal tax laws allow a single donor to exclude $11,000 of a gift from gift tax liability if the gift is of a present interest to a specific individual donee. For married couples the annual gift tax exclusion amount is $22,000 if the gift is to a third party. A present interest gift is one of which the donee has an immediate unrestricted right of use, benefit, and enjoyment.

Grantor - A person who transfers property to another person by a deed or written instrument such as a trust. The creator of a trust is referred to as a "grantor", "settlor' or "trustor".

Guardian - A person who is legally responsible for the care and management of the person, property, or both of an unmarried minor child. In California, minority now ends at age 18. A guardian also may have authority over the property of a married minor.

Heir - The person who inherits property through intestacy (dying without a valid will).

HIPAA - Health Insurance Portability and Accountability Act of 1996, Title 42 U.S.C. section 1320d.

Holographic will - A handwritten will.

Incapacity - A person's inability, whether due to age or infirmity, to carry out his/her own wishes.

Inter vivos trust - A trust created by a person during his/her lifetime. Also known as a "living trust".

Intestacy - Dying without a valid will.

Irrevocable trust - A trust the terms and provisions of which ordinarily cannot be changed, modified, altered, amended, or revoked. Under certain circumstances, a court may make limited changes.

Issue - Generally offspring or lineal descendants including children or grandchildren. Unless otherwise limited, the term "issue" also includes adopted children.

Joint tenancy - A form of property ownership by two or more persons designated as "joint tenants with right of survivorship." When a joint tenant dies, his or her interest in the property automatically goes to the surviving joint tenant(s) outside of probate by operation of law.

Letter of intent - A document that is usually written by a parent about his/her child which includes the child's history, current medical/mental status and the parent's wishes with respect to the future care of that child. Letters of intent are not legally binding documents. However, letters of intent provide evidence of a parent's plans and goals for their children in the event they are not able to raise them.

Life estate - An interest in property, the term of which is typically measured by the life of the person holding the interest.

Life tenant - The person who receives the benefits from real or personal property during his or her lifetime only. The benefits stop when the person dies. The benefits are rents, income, and possibly the use of the property. The life tenant is not necessarily the "tenant" occupying the property, such as a lessee or renter.

Living trust - Same as an "inter vivos trust".

Living will - A document which specifies a person's end-of-life decisions such as whether the person wishes to receive life-sustaining procedures in the event of serious illness.

Marital deduction - In estate and gift taxation, the marital deduction is the amount of property one spouse can give to the other spouse outright or in a special trust without estate or gift taxation. Under current tax laws (2004) the marital deduction is unlimited; therefore 100 percent of property, whether community or separate, passed to a surviving spouse is considered a marital deduction in computing the transfer taxes.

Minor - A person who is under the age of legal competence. In California, the age of majority is 18.

Personal property - Movable property as contrasted with real property. Personal property includes money, furniture, automobiles, and equipment.

Power of appointment - The power or authority given by one person by way of a deed, trust, or will to a second person which enables the second person to sell, transfer, contribute, encumber, or dispose of property owned by the first person. A power of appointment may be general or special, as defined below:

General power of appointment - Enables the second person to do all those acts for himself, his creditors, his estate, the creditors of his estate, or any other person.

Special power of appointment - Limits the second person concerning the persons to whom the second person can transfer the property over which he has a power of appointment.

Pour-over will - A will that provides for the transfer, after or during the probate court proceeding, of the net assets of the deceased person in the executor's control to the control of a trustee who is in charge of the deceased person's trust that was in existence immediately before the deceased person's death. The executor "pours over" the assets into the existing trust.

Principal - The property that makes up the corpus of the trust. The person who authorizes another to act on his or her behalf under a power of attorney.

Probate - The process of transferring the property of a deceased person to his/her heirs/beneficiaries. The probate court has jurisdiction over the executor and the assets of the deceased person. The purposes of probate include protection of:

(1) The heirs from fraud and embezzlement;
(2) The federal, state, and local governments so that all taxes are paid by the estate; and
(3) The creditors of the deceased person so that they are paid.

Probate starts with the will being admitted to probate and the executor being granted "letters testamentary." Probate ends after all taxes are paid, creditors are paid, and assets are accounted for and distributed as provided in the will. The Probate process can last from a few months to several years or more, depending on the complications in the estate.

QDOT trust - Outright transfers to a non-citizen surviving spouse do not qualify for a marital deduction. A qualified domestic trust or "QDOT" is a trust created to enable non-citizen surviving spouses to qualify for the marital deduction.

QTIP Trust - A special trust designed for the benefit of a surviving spouse under the requirements of the Internal Revenue Code that permit the assets transferred to that trust to escape death taxes on the death of the first spouse to die.

Quasi-community property (California only) - Quasi-community property is (generally) property acquired by either spouse while living outside California, that, if it had been acquired in California, would have been community property. For federal estate tax purposes, quasi-community property is treated as separate property.

Real property - An interest in land, or property permanently affixed to land such as a building.

Remainder interest - The residual ownership of property left in trust after the interest of a previous owner or the life tenant has terminated

Reversionary interest - The future return-to-ownership interest in property by a person who for a period of time has surrendered his/her ownership in trust or outright to another person. After that period, the property "reverts" or comes back to the original owner.

Revocable trust - A trust whose terms and provisions can be changed, modified, altered, amended, or revoked. The power to do all this is usually reserved by the person who created the trust, (the grantor, settlor or trustor) but sometimes the power may be given by the creator to a second person. The revocable trust is popular as a means of avoiding probate and as a substitute for a will. The revocable trust is often used for elderly people to protect themselves and their assets from the expense and delays of conservatorship.

Right of representation or per stirpes - Refers to a method for dividing property among the descendants when the original beneficiary has died. The descendants of that beneficiary take the same share or right that the beneficiary would have received had the beneficiary lived.

Rule Against Perpetuities - A complicated rule intended to prevent property from being frozen in a trust beyond a certain period of years. If a trust violates the rule against perpetuities it is void. The perpetuities clause in wills and trusts provides that the trusts contained in them terminate automatically at the required time.

Settlor - The person who creates a trust; also called a "grantor" or "trustor".

Separate property - In California, a category of property held by husband or wife that is not community property, but that is owned separately by the husband or wife. Gifts, inheritances, and property owned before marriage are usually considered separate property.

Special Needs Trust - A special kind of spendthrift trust designed to provide benefits to an elderly or disabled beneficiary while preventing the loss of government benefits received by that beneficiary.

Spendthrift trust - A trust that provides a fund for the maintenance of a beneficiary, which by its terms shelters the beneficiary's interest from the beneficiary's incapacity, and the claims of the beneficiary's creditors.

Survivor's trust - A sub-trust created following the death of a co-trustor spouse. The assets placed into the survivor's trust or "A trust" are considered to be part of the surviving spouse's estate and are used for the surviving spouse's care and maintenance. Survivor's trusts are typically used in conjunction with a bypass trust or "B trust".

Tenancy in common - A form of holding title to real or personal property by two or more persons. Because there is no right of survivorship to this property, the legal relationships and results are very different from joint tenancy.

Testamentary trust - A trust created in a will.

Testator - The person who makes a will. Testatrix is the female equivalent, but the term "testator" is currently used for either a man or a woman.

Trust - A legal entity established either by a trust agreement signed by a person during the person's life or arising after death from a will or testamentary trust. The trust is governed by the terms in the documents. A trust can last as long as 50 years, if not longer, so must be written with great care.

Trust funding - The act of conveying/transferring property to a trust (e.g., executing a deed conveying real property to the trustees of the trust).

Trustee - The person who holds title to the assets of a trust for the benefit of one or more other persons. The trustee is given certain powers by the trust and applicable law to carry out the wishes of the person(s) (grantor(s), settlor(s) or trustor(s)) who created the trust. The trustee has a fiduciary obligation to the trust's beneficiaries. The trustee is subject to strict regulation. Although the trustee has legal title for convenience, the beneficial or equitable title is in fact owned by the beneficiaries. When there is more than one trustee, the trustees are called co-trustees.

Trustor - The person who creates a trust; also called a "grantor" or "settlor".

Unified estate and gift tax rates - Effective January 1, 1977, the separate estate and gift tax schedules were combined into a single new tax schedule, so that the cumulative value of taxable gifts made during life is added to the value of the decedent's estate in determining the applicable estate tax rates. The same tax rates apply to both lifetime gifts and to the estate left at death. The current annual exclusion per donee (2004) is now $11,000.

Unified tax credit - The unified "credit" is a credit that may be applied to a federal gift or estate tax liability. dollar amount deducted from a "tentative tax." In 2004 the unified tax credit amount is $555,580.00.

Unified exclusion amount - The amount of assets a person may be exclude from tax upon his/her death. In 2004 the annual exclusion amount is $1,500,000.

Will - A document in which a person leaves instructions regarding the disposition of his/her assets after his/her death. A will may also be used to nominate a guardian for the testator's minor children.



[   Introduction   |   Wills & Trusts   |   Estate Planning Terms   |   Getting Started   ]



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