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Glossary of terms

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Administrator
The person appointed by the court to manage one's estate when he or she dies without leaving a will. Administrators have the same duties as executors.

Alternate Minimum Tax (AMT)
A parallel system of computing tax liability, which ensures that everyone will pay a minimum level of tax.

Annuity
A fixed sum of money payable yearly or at other regular intervals.

Appreciated Property
Property such as real estate or stock that has increased in value. Such assets would, if sold by an individual or non-charitable organization at a price higher than their basis, potentially generate a taxable capital gain (either long-term or short-term depending on the holding period).

Attorney
A person licensed by the state to practice law and assist the executor, trustee, and guardian. It is conceivable that each could hire a separate attorney, but usually one attorney represents all three.

Beneficiary
An individual designated to receive benefits or funds under a will or other contract, such as an insurance policy, trust, or retirement plan.

Bequest
A gift or legacy left by will, typically personal property or assets.

Bypass Trust
A trust set up to avoid or bypass the surviving spouse's estate, which enables each spouse to use the federal estate tax exemption.

Charitable Gift Annuity
A legal contract with a charity under which an individual, in exchange for a gift of cash or other assets, will receive fixed payments for life.

Charitable Trust
A trust having a charitable organization as a beneficiary.

Codicil
A legal instrument made to modify an earlier will.

Corporate Fiduciary
An institution that acts for the benefit of another. One example is a bank acting as trustee.

Cost Basis
The original value of an asset, such as stock, before its appreciation or depreciation.

Durable Power of Attorney
A written legal document that lets an individual designate another person to act on his or her behalf, even in the event the individual becomes disabled or incapacitated.

Estate Tax
A tax imposed at one's death on the transfer of most types of property.

Executor (or Personal Representative)
The person named in a will to manage the estate. This person collects the property, pays any debt, and distributes property or assets according to the will.

Fiduciary
A person or institution legally responsible for the management, investment, and distributions of funds. Examples include trustees, executors, and administrators.

Gift Tax
Tax on gifts, generally paid by the person making the gift rather than the recipient.

Gift-Tax Annual Exclusion
The provision in the tax law that exempts the first $13,000 (as adjusted for inflation) in present-interest gifts a person gives to each recipient during a year from federal gift taxes.

Grantor
The person who transfers assets into a trust for the benefit of him/herself or others.

Gross Estate
The total property or assets held by an individual as defined for federal estate tax purposes.

Guardian
An individual legally appointed to manage the rights and/or property of a person incapable of taking care of his or her own affairs. One can nominate a guardian in a will, and though normally the court will honor that nomination, the court has the right to agree or disagree.

Income in Respect of a Decedent (IRD)
Taxable income to which the decedent was entitled at death, but which has not been included in any previous income tax return.

Inter Vivos Trust
A type of trust created during one's lifetime to hold property for the benefit of him/herself or another person.

Interest
Any right or ownership in property.

Intestate
The term applied when an individual dies without a will.

Joint Ownership
The ownership of property by two or more people, usually with the right of survivorship.

Joint Tenancy
A type of ownership where any two or more persons, related or not, may hold (own) property and the property passes to the survivor or survivors on the death of one. This passing is not automatic, as some think, and the procedure for passing will depend on local law. But, this form of ownership does have the advantage of allowing property to pass to the survivor without delays of probate and court administration costs.

Life Insurance Trust
A trust that has an individual's life insurance policy as its principal asset. It is usually set up for the purpose of excluding the proceeds of life insurance from the insured's and the spouse of the insured's estate for estate tax purposes. It is an irrevocable trust.

Living Trust
A trust established by a grantor during his or her lifetime in which the grantor transfers some or all of his or her property into the trust. It can be revocable, meaning that some or all of the property in the trust can be returned to the grantor. An irrevocable trust cannot be changed except in certain legal circumstances (fraud, unlawful agreements, merger of interests, decision of the Court).

Living Will
A legal document directing that the maker's or signer's life is not to be artificially supported in the event of a terminal illness or accident.

Marital Deduction
A deduction allowing for the unlimited transfer of any or all property from one spouse to the other generally free of estate and gift tax.

Pooled Income Fund
An investment fund much like a mutual fund. It is made up of transfers by many persons to the fund who receive life income interest in exchange for their transfers, based on the value of the transfer into the fund and based on the income earned by the fund.

Power of Attorney
A written legal document that gives an individual the authority to act for another.

Powers of Appointment
A right given to another in a written instrument such as a will or trust that allows the other to decide how to distribute the property. The power of appointment is "general" if it places no restrictions on who the distributees may be. A power is "limited" or "special" if it limits who the eventual distributees can be.

Probate
The court process for determining the validity of a deceased person's will.

Qualified Terminable Interest Property Trust (QTIP)
A trust often set up for married couples to avoid transfer tax on the first spouse's death. The deceased spouse establishes the ultimate disposition of the property, rather than the surviving spouse, including the property in their estate. During his or her lifetime, the surviving spouse receives all income from the principal and, in some cases, has access to the principal.

Retained Life Estate
A gift plan defined by federal tax law allowing the donation of a personal residence (to include a vacation home) or farm, with the donor retaining the right to life enjoyment. A life estate may be retained for one or more lives or it may be retained for a term of years. All routine expenses—maintenance fees, property taxes, repairs, etc.—are the responsibility of the donor. The donor receives an income tax deduction for a significant portion of the value of the contributed property (the property is irrevocably deeded to the charity) and estate tax benefits.

Tenants In Common
A property ownership arrangement in which two or more persons own property jointly. It is not necessary that the ownership consist of equal shares or percentages of the property. Generally there is no right of survivorship when a co-owner dies. The share of the property belonging to the deceased co-owner passes to his or her heirs and the shares of the remaining original co-owners do not change.

Testamentary Trust
A trust that is created upon death by the terms of a person's will or living trust.

Testator
An individual who dies leaving a will or testament in force.

Trust
A written legal instrument created by a grantor for the benefit of him/herself (during life) or others (during life or at death), defined as any arrangement where property is to be held and administered by a trustee for the benefit of those for whom the trust was created. Depending on the type and how it is established, a trust may be revocable (changeable) or irrevocable (not changeable).

Trustee
The individual or institution entrusted with the duty of managing property placed in a trust. A "co-trustee" serves as trustee with another. A "contingent trustee" becomes trustee upon the occurrence of a specified future event.

Trustor
The individual who establishes a trust. Also referred to as the Grantor and/or Settlor.

Unified Credit
A federal tax credit that offsets gift tax and estate tax liability. For gift tax purposes, the unified credit remains at $345,800 through 2009, which is equivalent to an applicable exclusion amount of $1 million. For estate tax purposes, the unified credit is $1,455,800 in 2009, which is equivalent to an applicable exclusion amount of $3.5 million in 2009.

Uniform Prudent Management of Institutional Funds Act (UPMIFA)
The Act strengthens management of endowments and allows for spending levels that are more responsive to fiscal climate, both in allowing for growth and in expenditure, and in carrying out the intent of the donor. The model bill was drafted by the national Uniform Law Commission in 2006, has passed in 39 states over the past two years, and is pending in several others.

Unrelated Business Income Tax (UBIT)
A tax imposed on the unrelated business income generated by a non-profit organization that is not related to the tax-exempt purpose of that organization.

Will
A legally executed document that directs how and to whom a person's property is to be distributed after death.