Glossary of Estate Planning, Trust, and Probate Terms O Through Z
Pay on Death Account: Also called a POD account, a pay on death account is a method of non-probate transfer of funds to a beneficiary. The owner of a deposit account with a financial institution names a POD beneficiary who inherits the account upon the account ownerís death.
Personal Representative: An individual appointed by the court and authorized to administer the estate of a deceased person. See also: Executor.
Per Stirpes: The term per stirpes is a Latin term meaning per branch or by representation. When an estate is distributed per stirpes, if the deceased personís child has predeceased him, that childís share of the estate will pass to the childís descendants or issue. A per stirpes method of distribution occurs when a class of distributees inherit the share their deceased ancestor would have received.
Pet Trust: In a Pet Trust, the owner, called the trustor or grantor, places money or property in a trust to be held and managed by another person or institution, called the trustee, to pay for the care and maintenance of the ownerís pets. A pet trust is used when a pet owner wants to leave funds, in a legally enforceable way, to pay for his petís food, shelter, veterinary care, boarding, and other expenses for the remainder of his petís life, in the event of the pet ownerís disability or death. The pet owner transfers his animals and property to the Pet Trust. The pet owner also names a pet caregiver to provide shelter, food, and other care for the animals.
Pour-Over Will: A pour-over will is a type of will made by someone that is using a living trust as part of an estate plan. When a living trust is part of an estate plan, all assets of the grantor (the person making the living trust) are usually transferred into the living trust. The pour-over will is made to cover any assets of the grantor that were not properly transferred into the living trust. A pour-over will is made to ensure property is distributed according to the grantorís wishes despite passing outside the living trust. A pour-over will is subject to probate in the same manner as any other will.
Power of Appointment: A power granted by a donor or testator in a will, trust or deed to another individual to appoint or nominate the beneficiaries who shall receive estate or trust property after the death of the donor or testator. A Power of Appointment can be general or limited.
Power of Attorney for Finances: A Power of Attorney for Finances allows another person to act on your behalf or in your place in financial matters, such as signing checks or contracts, and selling assets such as real estate, stocks, and bonds. To grant a Power of Attorney, you must be at least 18 years of age and of sound mind. If you create a Power of Attorney, you are the principal and the person to whom you grant the power is the agent or attorney-in-fact. The scope of the agentís power depends on the type of Power of Attorney, which can be either Limited or General. A Limited Power of Attorney limits the agentís powers to those expressly enumerated in the document. A General Power of Attorney is broad and sweeping. It grants the agent all the powers you possess as the principal.
Pretermitted Heir: A spouse, child or other descendant of a person who makes a will (the ďtestatorĒ) that is not mentioned in the testatorís will, but whom would have had a legal right to inherit from the testatorís estate if he or she died intestate (without a will).
Professional Fiduciary: A person, company or institution that acts for the benefit of an unrelated party and is paid for such fiduciary services. Professional fiduciaries may be retained to serve as trustee of a trust, agent under a power of attorney, personal representative of an estate, conservator of a conservatee in a conservatorship, or guardian of a ward of the state.
Section 2503c Minorís Trust: A trust used by a donor to make tax-free gifts to a minor beneficiary who is less than 21 years of age. Section 2503c trusts are named after the section of the U.S. Internal Revenue Code which permits gifts to this type of trust to qualify for the annual gift tax exclusion. Self-Proving Affidavit: A written statement signed under oath by a testator and the witnesses to a will at the time the will is signed or at some time thereafter. A self-proving affidavit may be executed and attached to the will so the witnesses do not have to be located after the testatorís death to prove the testatorís signature on the will so the will can be admitted to probate. See
self-proving will forms. Self-Settled Trust: A Self-Settled Trust, or Self-Settled Special Needs Trust, is one funded by the assets of the beneficiary. For example, if a child receives an inheritance, life insurance proceeds, or personal injury settlement, it may be beneficial for those assets to be put into the trust rather than have them continue to be owned by the child, so the child may be eligible for SSI or Medicaid. Shareholdersí Agreement: A written agreement that restricts how a corporationís shares may be transferred or sold by the owners of the company. A Shareholdersí Agreement is also called a Buy-Sell Agreement.Silent Trust: A type of estate planning trust which includes provisions exempting the trustee from certain duties to notify and inform the beneficiaries about the trust for a period of time. See
Silent Trusts.Special Needs Trust: A Special Needs Trust is created to hold and disburse property for the benefit of a child or adult with physical or mental disabilities (the beneficiary). A Special Needs Trust can be set up for a variety of reasons such as: (1) appointing a trustee to manage property because the beneficiary is unable to do so; (2) as part of a parentís estate plan for the benefit of his child; and (3) to ensure the beneficiaryís eligibility to receive Supplemental Security Income (SSI) and Medicaid is not impacted by the beneficiaryís receipt of a lump sum of money or other property. For example, a SNT is often set up when a special needs child is about to receive a personal injury settlement or inheritance. A Special Needs Trust may also be funded by life insurance. A Special Needs Trust is drafted so SSI and Medicaid will not consider the property in the trust to be income or a financial resource of the beneficiary. The trustee of the trust has sole discretion over disbursements for the benefit of the beneficiary. The trustee is not allowed to make disbursements from the trust that would jeopardize the beneficiaryís eligibility for SSI and Medicaid. Money from a special needs trust cannot be used for basic support for the child. It must be used to pay for supplemental expenses of the child such as travel, dietary supplements, entertainment, and anything over and above what government benefits provide. The assets in the Special Needs Trust are generally protected from creditors and related types of claims. Spendthrift Trust: A trust designed to provide income to a trust beneficiary while controlling or limiting the trust beneficiaryís access to the trust principal to prevent the beneficiary from squandering an inheritance or gift or shield the trust assets from claims of the beneficiaryís creditors.
Stretch IRA: A stretch IRA is not a special type of individual retirement account (IRA). Rather, Stretch IRA refers to an estate planning strategy designed to keep the original IRA ownerís funds invested in the IRA and growing tax-deferred for as long as the law allows, thus reducing income taxes and the amount of required distributions from the IRA. The goal of a Stretch IRA is to stretch out distributions from the original ownerís IRA funds over one or two generations. Since a much younger beneficiary may be named on an IRA, such as the IRA ownerís child, the required minimum distributions from the IRA will be much less and stretch over a longer period of time.Successor Trustee: A trustee that assumes the role of trustee after the original trustee is deceased or a prior trustee leaves the position. In a living trust, the successor trustee is usually the person that becomes trustee after the grantorís death. A successor trustee is referred to simply as the trustee. See definition of Trustee.Supplemental Benefits Trust: Also called a Supplemental Needs Trust or SNT. Some attorneys prefer the term Supplemental Benefits Trust because the trust is designed to pay for supplemental benefits for the beneficiary that are not provided by the government.
Surety Bond: A bond issued by a surety to guarantee the performance of a principal in his obligations to another, the obligee, in the event of the principalís default, such as the performance of an executor or administrator of an estate. A probate court may require an executor to post a type of surety bond before the estate may be probated. An executorís bond is a type of surety bond.
Tenants in Common: A method of holding title to property in which two or more co-owners, called co-tenants, each own an undivided share of the property. The co-tenants may be related or unrelated. Each co-tenant has the right to use and enjoy the entire property and to sell or transfer his interest in the property without consent of the other co-tenants. When an owner of tenants in common property dies, his share of the property passes to the beneficiaries of his will or to his legal heirs if the co-tenant died intestate. Unlike property owned as joint tenants or tenants by the entirety, the deceased co-tenantís share does not terminate at death.
Term Life Insurance: Term life insurance is temporary insurance because the policy is only for a specified period of years. It accumulates no cash value. Term life insurance is often called pure life insurance because it consists solely of life insurance with no cash accumulation or other features. It is the cheapest way to purchase life insurance to obtain the highest face amount or dollar value policy. Upon expiration of the initial term of the policy, you may be able to renew it for an additional term but the premium may increase since this type of policy does not provide a level premium. For more information, go to Types of Policies.
Testamentary: Pertaining to, appointed by or bequeathed in a will.
Testamentary Trust: A trust created pursuant to the testatorís will. A testamentary trust is established after the death of the testator. If the testatorís will establishes a testamentary trust, the trust will not exist until after the testatorís death.
Testator: A person who makes a valid will.
Transfer on Death Deed: A Transfer on Death Deed or TODD is a type of property deed which names the beneficiary who will become the new owner of the property upon the death of the current owner. A Transfer on Death Deed is an estate planning tool used to avoid probate. Upon death of the real property owner, the property passes to the beneficiary outside of probate, similar to a pay-on-death bank account.
Trustee: A person or entity appointed to manage and administer trust property according to the terms of a trust for the benefit of trust beneficiaries.
Trust Transfer Deed: A Trust Transfer Deed is a type of property deed which transfers title from the real estate owner, called the grantor, to the trustee of the grantorís living trust so that such property will not be subject to probate upon the grantorís death.
Uniform Gifts to Minors Act or UGMA Account: An account an adult can open for a minor child which allows money, securities, and certain other types of assets to be gifted or transferred to the child and controlled by an adult custodian until the child reaches the age of majority. Many states have revised their laws to replace UGMA accounts with a similar type of account called a UTMA account.
Uniform Transfers to Minors Act or UTMA Account: An account an adult can open for a minor child which allows money, securities, real estate, and other types of assets to be gifted or transferred to the child and controlled by an adult custodian until the child reaches the age of majority.
Universal Life Insurance: Universal life insurance is also permanent life insurance because it continues throughout the insuredís lifetime provided the premiums are paid. Like whole life insurance, universal life has a cash accumulation component. However, it differs from whole life insurance because it has features that allow for either the death benefit or the premiums to be adjusted depending on the needs of the insured. For example, the amount of the premium can be adjusted downward for a reduced death benefit or the death benefit can be increased for a higher premium.
Variable Life Insurance: Variable life insurance is permanent life insurance because it continues throughout the insuredís lifetime provided the premiums are paid. The premiums remain level throughout the life of the policy holder. Variable life has a cash accumulation component, however, you generally cannot withdraw cash from the variable life policy during your lifetime. Variable life insurance offers a wide range of investment options. A variable life policy features a separate account in which the policyholder can have a portion of the premiums invested in stock, bond, or money market mutual funds to seek a higher rate of return than is available with other types of permanent insurance. The separate account grows tax deferred until the policy is surrendered. The death benefit and value of the variable life policy will vary or fluctuate depending on the performance of the investments, but a minimum death benefit is guaranteed. If you earn interest on the separate account, that amount can be used to pay premiums on the policy. Variable life insurance is regulated under the federal securities laws and is required to be sold with a prospectus.
Variable Universal Life Insurance: Variable universal life combines the features of universal life and variable life. It features a separate account where part of the premiums can be invested in stock, bond, and money market mutual funds. Variable universal life also provides the flexibility to have the death benefit and/or the premiums adjusted upward or downward.
Viatical Settlement: Also called a ďviatical agreementĒ, a viatical settlement is when the owner of a life insurance policy sells the policy to a third party on the basis that the insured has a terminal illness, catastrophic condition or chronic disease. The insured usually receives a lump-sum payment and the viatical settlement provider purchases the life insurance policy at a discount to the face value of the policy. When the insured dies, the viatical settlement provider collects the death benefit.
Whole Life Insurance: Whole life insurance provides a level premium that generally remains the same throughout the insuredís lifetime. The policy continues to age 100. It has a savings feature that accumulates a cash value which can be accessed through policy loans. Whole life insurance is permanent insurance because it continues throughout the insuredís lifetime provided the premiums are paid. As you make payments, the cash value in the account grows tax-deferred until you withdraw it. However, amounts taken out as a loan will reduce the death benefit under the policy and if a large enough amount is withdrawn, it can constitute a complete surrender resulting in termination of the coverage. The dividends you earn may be used to reduce your premiums.
Will: A will is a legal document the testator (the person making the will) makes to indicate how he would like to distribute the property owned by him at his death. A basic will or standard will is used when the testator does not have a living trust as part of his estate plan and therefore does not want a pour-over will designed to be used in conjunction with a living trust.
For the meaning of other terms used in estate planning, wills, and trusts, go to Glossary of Estate Planning, Trust, and Probate Terms A Through G.