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ESTATE PLANNING'S WORDS TO LIVE BY:
A GLOSSARY

by Christopher G. Stoneman

For a change of pace, let's devote this article to the development of a basic estate-planning glossary - the sort of thing that might function as a practical aid to deciphering previous estate planning articles in this series and those which we hope you will be reading during the months ahead.

Administrator (-trix) - A person appointed by the probate (q.v.) court to handle the administration of an intestate (q.v.) estate

Bequest - A gift under a will, usually used to describe a gift of personal property (q.v.) as distinguished from real (q.v.) property. Sometimes known as a legacy.

Bypass trust - See Unified credit.

Codicil - A supplement to a will that must be executed with the same legal formalities as the will itself.

Credit shelter trust - See Unified credit.

Devise - A gift under a will, usually used to describe a gift of real property (q.v.) as distinguished from personal property (q.v.).

Discretionary trust - A trust in which the trustee has discretion to determine which one or more of a defined class of beneficiaries are to receive income or principal from the trust and when and in what amounts.

Domicile - The jurisdiction in which a person resides or of which he or she is a domiciliary. Each of us has a domicile, which normally begins as the domicile of our parents but may change many times during our lifetime. The law of the domicile determines who receives a person's personal (q.v.) property if he or she dies intestate (q.v.), the effect of will provisions, etc.

Distributees - Those persons who receive the estate of a decedent who has died intestate (q.v.). Generally interchangeable with "heirs."

Durable health care power of attorney - A durable power of attorney (q.v.) that confers authority upon the agent named to make health care decisions on behalf of the principal when (and only when) the principal becomes incompetent to make such decisions. In Vermont the durable health care power of attorney is specifically sanctioned by a statute, which sets the wording to be used. Those who act as agent pursuant to such a power or who carry out the instructions of an agent named in such a power are protected from civil and criminal liability. The scope of authority conferred by a Vermont durable health care power of attorney may be unlimited or restricted, as the principal determines.

Durable power of attorney - A power of attorney (q.v.) that continues in effect even if the person executing it (the principal) subsequently becomes incompetent (q.v.). Now, by statute in every U.S. jurisdiction, a power of attorney that contains a "durable" clause remains effective without regard to the principal's degree of competency. One that does not contain a "durable" clause becomes ineffective if and when the principal becomes incompetent, just when in all likelihood it is most needed. It is also possible to have a power of attorney that doesn't initially become effective unless and until the principal becomes incompetent (a "springing" power).

Estate - A term with a number of meanings. Sometimes used to mean the whole of a person's probate (q.v.) property, sometimes used in a broader sense to denote all of the property (including jointly held property) that passes at a person's death, and sometimes to define the property subject to a particular death tax (usually preceded by the term "gross").

Estate tax - The excise tax imposed by a jurisdiction (federal or state) upon an individual's property passing at death.

Executor (-trix) - A person appointed by the probate (q.v.) court to handle the administration of an intestate (q.v.) probate estate.

Generation-skipping transfer tax - The third and newest of the transfer taxes imposed by the federal government upon the gratuitous transfer of property by one individual to another (the other two being the estate tax (q.v.) and the gift tax (q.v.)). The generation-skipping transfer tax, which has a $1 million exemption making it inapplicable to the great majority of taxpayers, is designed to tax transfers that "skip" generations, i.e., pass from a transferor at one generational level (a grandparent, for example) to a beneficiary two or more generations below (e.g., a grandchild or great-grandchild). The tax, when it applies, is imposed at the top estate tax rate (currently 55%).

Gift tax - The tax imposed by a jurisdiction (federal or state - Vermont, however, does not levy a gift tax) upon certain gratuitous lifetime transfers. The estate tax and the gift tax were formerly imposed at separate rates but are now covered by a single "unified" rate schedule.

Guardian - A person appointed by the probate (q.v.) court to safeguard the interests of an infant (q.v.) or an incompetent (q.v.) adult. A guardianship may be of the person (concerned with supervision of the ward, i.e., the individual subject to the guardianship), of the ward's property, or of both.

Incompetence (-y) - Lacking the mental capacity, as a matter of law, to act for oneself in certain matters. An incompetent is said to be under a legal disability. A person may be judged incompetent because of a mental defect or supervening mental disability. Being under a legal disability for certain purposes, an infant (q.v.) is sometimes loosely referred to as being an incompetent.

Infant - An individual under the age of majority, which in Vermont is 18 but differs from state to state. An infant is deemed legally incapable of making a will.

Intestate (-acy) - An individual who dies without a will (i.e., in a state of intestacy). Intestacy may be complete or it may be partial, as in the case of a will that fails to dispose of some part of the probate (q.v.) estate.

Irrevocable trust - A trust that neither the creator (grantor, settlor, donor) nor anyone else may revoke.

Joint tenancy - A form of joint ownership by which at the death of one joint tenant property passes automatically, or by "operation of law," to the survivor or survivors. Jointly held property is non-probate property, i.e., not part of the probate (q.v.) estate, but at the death of the last joint tenant to die, what was formerly jointly owned becomes probate property.

Living trust - A living (or inter vivos) trust is a trust established during the creator's lifetime, as distinguished from one established by a will (a "testamentary trust").

Living will - An instrument (provided for by statute in Vermont and a number of other states) that, while not a legally binding direction, is intended to serve as an unequivocal statement for the guidance of family, physicians, spiritual advisers and others that if the signer is in a terminal state with no reasonable expectation of recovery, he or she does not wish heroic measures to be taken to prolong life.

Marital deduction - The deduction given by the estate and gift tax statutes for gifts from one spouse to the other.

Per stirpes - Property that a will or trust agreement directs shall be distributed "per stirpes" (by branches or roots) descends down family lines by representation. If, for example, T, the testator (q.v.), leaves everything to his descendants "per stirpes" and is survived by four children, A, B, C, and D, and three grandchildren who are the children of a fifth child, E, who predeceased T. Each of A, B, C, and D will receive one fifth of T's estate, and each of E's three children will receive one fifteenth -one third of the one fifth which E would have received had he or she survived T.

Personal property - Property other than real (q.v.) property. Personal property may be tangible (books, jewelry, furniture, cattle, equipment, boats, personal papers, etc.) or intangible (bank balances, stocks and bonds, tax refunds, etc.).

Power of appointment - A power to dispose of property, as distinguished from ownership of the property. A power of appointment may be general (i.e., unlimited) or special (limited as to the persons in whose favor it may be exercised). Whether or not exercised, general powers of appointment are now treated for federal estate-tax purposes as the equivalent of outright ownership.

Power of attorney - An authority which one person (the principal) gives to another (the attorney, attorney-in-fact or agent) to act in the principal's behalf.

Pourover - A pourover will is a will that "pours over" property of the probate (q.v.) estate into a trust that was created during the lifetime of the testator. Such a trust, logically enough, is known as a "pourover trust."

Probate - The process of "proving" a will, i.e., obtaining a judicial declaration that an instrument is indeed the last will and testament of the person who executed it. The term is used to describe the process of court-supervised administration of an estate, both where there is a will (testate administration) and where the decedent died without one (intestate administration). Probate property is that property of a decedent that is covered by such an administration and does not include such items as jointly owned property and life insurance that is made payable to a named beneficiary.

Real property - All estates and interests in land, including improvements annexed to the land, as distinguished from personal (q.v.) property.

Remainder - That interest in a trust that follows a life interest or life estate. A trust may be set up to give all of the income to a surviving spouse for his or her lifetime, with provision, for example, that at his or her death whatever is left is to go to the couple's children or to the local hospital. The children or the hospital, as the case may be, have the remainder interest in the trust and are sometimes referred to as "remaindermen." If, for example, the children have to survive the surviving parent in order to receive their remainder interests (as is the customary arrangement), their interests are said to be "contingent remainders," i.e., contingent upon such survivorship.

Residuary estate - That part of the probate estate that remains after satisfaction of all specific and general bequests (q.v.) and devises (q.v.), debts and expenses of administration. Typically, a will specifically disposes of the testator's tangible personal (q.v.) property and real (q.v.) property and may also make cash gifts to named individuals and organizations. Whatever remains is the residuary estate or "residue."

Revocable trust - A trust over which the creator (grantor, donor, settlor) has retained or has given someone else a power of revocation or amendment.

Spray/sprinkle trust - A trust for a group of beneficiaries, with the trustee being given the discretion to "spray" or "sprinkle" the income and, possibly, the principal as the trustee determines. The trust instrument may specify the criteria to be applied by the trustee in its exercise of discretion.

Standby trust - A nominally funded living trust that "stands by," awaiting transfer of property, usually upon the death of the creator of the trust who may have executed a pourover will (q.v.) or designated the trust as the recipient of life insurance proceeds to be paid upon the creator's death.

Tenancy by the entireties - A form of joint ownership with right of survivorship where the joint owners are husband and wife. Whereas one joint tenant acting alone may sever a joint tenancy (q.v.), severance of a tenancy by the entireties requires that both tenants act together.

Tenancy in common - Another form of joint ownership. Differs from joint tenancy (q.v.) and tenancy by the entireties (q.v.) in that there is no survivorship feature. Each tenant in common has a separate undivided one-half (or one-third, etc., depending upon the number of co-tenants) interest in the property.

Testamentary - Of or pertaining to a will. The testamentary estate is the sum of all the property that passes under a decedent's will. A testamentary power of appointment is one that may be exercised by will. A testamentary trust is one that is created by will, as distinguished from a living trust (q.v.).

Testator (-trix) - one who makes a will.

Unified credit - A credit against the gift and estate tax, presently set at $192,800 (which translates into a $625,000 exemption from those taxes). The unified credit and the corresponding exemption are set to increase gradually to $1,000,000 and $345,800, respectively, by the year 2006. A trust that is designed to take advantage of the unified credit is known as a "unified credit", "bypass" or "credit shelter" trust ("bypass" because the trust bypasses the beneficiary's estate and is not taxed at the beneficiary's death; "shelter" because the trust shelters the exemption amount equivalent of the unified credit from tax at the beneficiary's death).

Christopher Stoneman

The complete list of Christopher Stoneman articles is:

     

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