Trust & Estate Glossary

Children's Trust

A document that controls when your children will be able to access the money you've left them. Frequently the trust provides for equitable payment of college costs for each child. Then assets are distributed as you direct. Many times parents will choose to stagger when the money is paid out - for instance, one third at age 25, one third at age 30, and the final third at age 40.

Executor

The person who administrates your final estate. He or she should be sensitive to the needs of your beneficiaries, competent to handle financial and legal matters, and available and willing to take on responsibilities.

Family Trust

Also known as a "B" trust, or credit equivalent trust, a family trust is funded with up to the maximum assets that can pass with no tax due, currently $2,000,000.00 (2006). These assets are taxed at death, but since each person has a unified credit, no tax is actually due. Once these assets have been taxed (with no tax due), they are free to grow to any amount and will never be taxed again for estate purposes.

Guardian

The person(s) who will take care of your dependents. They should know your children already (if possible), share your philosophic views, and be financially able to take on the responsibilities.

Health Care Power of Attorney

A document that clearly states what your wishes are if you find yourself needing medical care and you can't represent yourself. You appoint an agent who will act on your behalf to make sure your wishes are followed.

Irrevocable Life Insurance Trust

A document that removes the value of your life insurance from your taxable estate. You choose a trustee to make sure the policy premiums are paid and that your beneficiaries receive proceeds at your death.

Living Trust

A trust that's established while you are alive. You can declare yourself the trustee of the trust until you are no longer able to act on your own behalf. You can set standards for determining capacity. For example, your doctor and your spouse must agree that you are unable to act. At which time the trustee can manage your assets to take care of you and your loved ones. Assets must be re-titled in the name of your living trust. At your death, any assets in the living trust do not have to go through probate.

Marital Trust

Also known as an "A" trust, the marital trust provides management for assets passing to your spouse. The alternative is to leave assets for your spouse outright (no trust). A trust can add a level of comfort that someone is available to manage the assets. If no restrictions are placed on what happens to the assets after the second spouse dies, it's called a general power appointment. If you choose to control what happens after the second death, you need to establish a Qualified Terminable Interest Property trust or "QTIP" trust (a stricter form of marital trust).

Power of Attorney for Property

A document that establishes who will act on your behalf (again your "agent") in financial maters if you are incapacitated. The agent can manage your assets, sign a tax return, pay your bills, or even sell property. He or she can also fund a "living trust".

Probate

A court process that ensures all your final debts are paid and that your will is followed. Probate can be a lengthy and costly process, but not always. There are several techniques available to transfer property without going through probate, including the use of living trusts.

QTIP Trust

Often used in second marriages where children are involved, a QTIP trust allows the creator of the trust to determine where his or her assets will ultimately go after the second spouse dies.

Special Needs Trust

A type of trust that can be set up for a disabled person. By specifying that assets are to be used only for "luxuries" and not basic care, the trust allows the disabled person to continue being eligible for government financial aid.

Taxable Estate

The total assets that will be taxed at your death. To calculate you taxable estate, you first determine your "gross estate", then subtract any marital or charitable deductions.

Testamentary Trust

The opposite of a living trust. This trust isn't established until after you die. Your will typically includes the language to establish these trusts at your death.

Trust

A separate legal entity that holds property for the benefit of the grantor (creator) of the trust or his or her heirs. A trustee manages the assets that are placed in the trust and makes sure that the terms of the trust are followed.

Trustee

A person who holds title to assets that will be used for the benefit of someone else. This person or institution acts as the business manager for trust assets. When choosing a trustee for your trust, look for someone who is financially capable, responsible, and sensitive to your family's needs.

Unified Credit

A credit for a portion of estate tax due on taxable estates. Everyone is allowed one unified credit. In 2006, the credit for gifts is $345,800 eliminating the tax liability on a $1,000,000 while the credit for testamentary bequests is $780,800 or a taxable equivalent of $2,000,000 respectively.

Unlimited Charitable Deduction

Allows anyone to bypass estate tax by gifting property to a quality charity.

Unlimited Martial Deduction

Allows one spouse to pass an unlimited amount of assets tax-free to the other spouse in life or death (unless one spouse is not a US citizen).

Will

A document that controls the flow of your property, such as jewelry, family heirlooms, and assets held in your name only. It does not control what passes by beneficiary designation (life insurance, IRAs, retirement plans, Transfer on Death agreements), by contract (joint tenancy with rights of survivorship), or by trust.