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An Estate Planning Glossary

During the development of your estate plan, you'll most likely come across unfamiliar terms that are confusing or difficult to understand. Of course, your estate planning professional is right at home with these terms and will be glad to answer any questions you have about their meaning.

You also may find it helpful to refer to the glossary below. It contains a number of the most frequently used estate planning terms along with a brief explanation of each.

Administrator - The individual or institution appointed by a court to oversee the settlement of the estate of a person who has died without a will.

Annual Exclusion - The amount of money or property (currently $10,000 for an individual and $20,000 for a married couple) that may be given as a gift to a recipient each year without incurring a gift tax. The amount will be indexed for inflation after 1998.

Appraisal - The process of evaluating the monetary worth of property that is part of an estate.

Beneficiary - An individual named as the recipient of the income or principal of an estate or trust.

Bequest - Property given as a gift under the terms of a will.

Capital Gains and Losses - For tax purposes, the difference between the purchase price and selling price.

Codicil - An addition or other change to an existing will.

Claim Against an Estate - Refers to a charge against an estate to settle an agreement or an outstanding obligation (as in the case of bills unpaid at the time of death).

Contest of a Will - Legal proceedings to prevent or alter distribution of estate assets as described in a will.

Death Taxes - A general term used to refer to taxes against property or the transfer of assets upon the death of the owner, including all estate and inheritance taxes. Sometimes referred to as estate taxes.

Deduction - For tax purposes, the portion of an estate that does not generate tax (such as a marital deduction).

Donee - The recipient of a gift.

Donor - The giver of a gift.

Executor - The individual named in a will charged with carrying out the provisions specified in the will. A Co-executor serves as executor along with one or more designated individuals.

Fiduciary - An individual or institution responsible for acting in the best interests of another party. A fiduciary is bound by law and duty to put aside personal interests and act in good faith when making decisions for the benefit of another.

Gift Tax Annual Exclusion - The first $10,000 in gifts that an individual can give tax free to another during a calendar year. The amount will be indexed for inflation after 1998. (See Annual Exclusion.)

Grantor - An individual who gives property outright or in a trust.

Guardian - An individual or institution named by a court to manage the property of a person who is adjudged incapable of handling his or her own affairs.

Heir - One who inherits from the estate of a person who has died.

Intestate - Dying without a will.

Invasion of a Trust - Refers to a distribution of assets made from the principal of a trust.

Irrevocable Trust - A type of trust that cannot be revoked or changed in any way.

Joint Ownership - Also called joint tenancy, this phrase refers to ownership of property by two or more persons, generally with right of survivorship (upon the death of one owner, the surviving owner or owners assume ownership).

Last Will - Literally, the will last executed by an individual, which revokes any former existing wills.

Living Trust - A trust that takes effect while the Settlor is still alive.

Living Will - A legal document in which an individual states, in advance of final illness or injury, his or her wishes regarding procedures and equipment designed to extend life.

Power of Appointment - The power given by an individual to another in a will or trust document to determine which persons will receive an interest in his or her estate.

Power of Attorney - A legal document authorizing one individual to act as the agent or "attorney" for another (the "principal"). If the attorney is authorized to act in behalf of another for all matters, he or she has general power of attorney. Authority to act solely regarding specified situations is special power of attorney. If the authority granted extends beyond the disability of the principal, the attorney has durable power of attorney.

Principal - Refers to the assets included in a trust that yield income. In an agency relationship, this word refers to the individual who gives authority to the agent to act on his or her behalf.

Probate - The process through which a will is proved to be valid.

"Prudent Investor" Rule - Legal term that refers to the duty of the fiduciary to invest and manage assets in the best interests of another.

Remainderman - In the case of a trust, this term refers to the individual who will receive the principal of a trust when final distribution takes place.

Revocable Trust - A type of trust that can be terminated by the settler (the opposite of an irrevocable trust).

Settlor - An individual who establishes a trust in order to transfer property. (See Grantor)

Successor Trustee or Executor - An individual or institution taking the place of a trustee or executor unable to continue the responsibilities designated in the trust agreement or will.

Testamentary Trust - A type of trust that is established under the will of a deceased individual.

Testate - Making and leaving a valid will; an individual who dies without having made a will is said to have died intestate.

Title - Legal ownership of property.

Trust - A legal, fiduciary relationship in which an individual or institution (the trustee) holds legal title to property with the responsibility for keeping or managing this property for the benefit of another person or beneficiary.

Trust Agreement - A legal document that establishes a trust and outlines the rules and guidelines affecting its management and disposition.

Trust Fund - Property held in trust. This term originally applied only to money held in trust, but is frequently used when referring to all property held in trust.

Trustee - The individual or institution with responsibility for management of property placed in trust for the benefit of another individual.

Unified Credit - A federal tax credit that offsets gift and estate tax liability.

Will - A legal document expressing the wishes of an individual regarding distribution of his or her property after death.

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