Christopher Stoneman Estate Planning Articles

II - A Glossary of Common Terms

At first, admittedly at the risk of seeming to put the cart before the horse, it may be helpful to start with a simple glossary of the terms which we will necessarily encounter in the material that follows. Here, in alphabetical order, is a selection of the basic estate-planning terminology that mortality entails!

Note: As you read, if you click on "q.v." it will take you to the place on this page where the noted term is defined. To return to where you were, simply hit the "Back" button on your browser.

            Administrator (-trix) – A person appointed by the probate 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 property (q.v.). Sometimes knows as a “legacy.”

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

            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 of a defined class of beneficiaries is to receive income or principal from the trust and the measure of what each beneficiary is to receive.

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

            Durable health care power of attorney – A durable power of attorney (q.v.), also known as an “Advance Directive for Health Care,” which confers authority upon the agent named to make health care decisions on behalf of the principal whenever the principal becomes incompetent to make such decisions for himself or herself. In Vermont the durable health care power of attorney is specifically sanctioned by a statute which sets out the provisions which the form may contain. 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.) which is not deemed a nullity if the person executing it (the “principal”) subsequently becomes incompetent (q.v.). At common law incompetence nullifies a power of attorney. Now, by statute in every U.S. jurisdiction a power of attorney which contains a “durable” clause stating that it is to survive incompetency remains fully effective without regard to the principal’s subsequent incompetency.

            Estate – A term with a number of meanings. Sometimes used to mean the totality of the probate (q.v.) property, sometimes used in a broader sense to denote all of the property  (including jointly held property) which passes at a person’s death, and sometimes used to define the property subject to a particular death tax.

            Estate tax – The tax imposed by a jurisdiction (federal or state) upon an individual’s property passing at death or in or over which a decedent then has a degree of enjoyment or control sufficient to cause it to be treated as belonging to the decedent. An estate tax is to be distinguished from an inheritance tax (q.v. for the distinction). As currently provided, the estate tax (but not the gift tax (q.v.)) is due to be repealed in 2010, as is the generation-skipping transfer tax (q.v.).

            Executor – (trix) – A person appointed by the probate court to handle the administration of a testate (q.v.) 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 $2,000,000 exemption making it inapplicable to the great majority of taxpayers, is designed to tax transfers, whether of principal or of income, which “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 disastrous, to put it mildly, since it is imposed at the top estate tax rate (currently 46%).

            Gift tax – The tax imposed by a jurisdiction (federal or state – Vermont and most other states do 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 court (q.v.) to safeguard the interests of an infant (q.v.) or incompetent (q.v.). A guardianship may be of the person (concerned with supervision of the ward, i.e., the individual subject to the guardianship) or of the ward’s property.

            Heirs – Those individuals who inherit a decedent’s probate (q.v.) estate in the event of intestacy (q.v.), sometimes referred to as “distributees.”

            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 adjudged an incompetent because of a mental defect such as retardation or because of supervening mental disability. Being under a legal disability for certain purposes (e.g., cannot make a contract other than a contract for necessaries), an infant (q.v.) is sometimes loosely referred to as being an incompetent (especially by the exasperated parents of rebellious teenagers).

            Infant – An individual under the age of majority, which in Vermont and many other states is 18, but which differs from state to state. An infant is legally incapable of making a will.

            Inheritance tax – The tax imposed by a jurisdiction upon property passing at death. Unlike an estate tax (q.v.), which is based upon the “privilege” of transmitting property (with whatever deductions the estate tax law may provide), the inheritance tax is a tax upon the recipient’s “privilege” of inheriting the property and is imposed at graduated rates applicable to the class of beneficiaries (e.g., spouse; e.g., issue) to which the inheritor belongs.

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

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

            Issue – descendants of whatever degree of a stated progenitor.

            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. At the death of the first joint tenant jointly held property is treated as nonprobate property, i.e., not part of the probate estate (q.v.). At the death of the second it will become part of that estate.

            Living trust – A living (or inter vivos) trust is a trust established during the creator’s lifetime as distinguished from one established by will (a “testamentary trust”).

            Marital deduction – The deduction given by the federal estate and gift tax statutes for certain gifts made by one spouse to the other.

            Per stirpes – Property which is to be distributed “per stirpes” (by branches, stocks or roots) descends down family lines by representation. If, for example, T, the testator, leaves everything to his descendants or issue (q.v.) “per stirpes” and is survived by four children, A, B, C, and D, and three grandchildren who are the children of the 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.) If one of  E’s three children had also died before T but had left two children (i.e., great-grandchildren of T) who survived T, each of those two children would receive one thirtieth of T’s estate (one half of the one fifteenth which their parent would have received had he or she survived T.) The opposite of “per stirpes” is “per capita”, which means that each descendant receives an equal share regardless of his or her generational level. In the first example (if T had left his estate to his descendants “per capita”), A, B, C, D and the three children of E would each have received one seventh.

            Personal property – Property other than real property (q.v.). Personal property may be “tangible” (books, jewelry, furniture, cattle, equipment, boats, personal papers, etc.) or “intangible”) (bank balances, stocks and bonds, right to royalties, 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 in scope) or “special” or “limited” (limited as to the persons in whose favor it may be exercised); and it may be made exercisable during the holder’s lifetime or upon her or his death, as the donor of the power directs. Not surprisingly, general powers of appointment are generally treated for federal estate-tax and gift-tax purposes as the equivalent of outright ownership.

            Power of attorney – An authority, whether of broad or limited scope, which one person (the “principal”) gives to another  (the “attorney-in-fact” or “agent”) to act in the principal’s behalf. See also “durable power of attorney.”

            Pourover – A pourover will is a will which “pours over” property of the probate estate (q.v.) into a trust which was created during the lifetime of the testator (q.v.). 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 also used to describe the process of court-supervised administration of an estate, both where there is a will (“testate administration”) and where the decedent dies without one (“intestate administration”). “Probate property” is that property of a decedent which is covered by such an administration and does not include such items as property owned jointly with right of survivorship and life insurance made payable to a named beneficiary, which are sometimes referred to as “nonprobate” assets. Whether or not a particular asset is a probate or nonprobate asset normally has nothing to do with whether or not it is includable in the decedent’s gross estate for estate-tax purposes.

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

            Remainder – That interest in a trust which 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 which remains after satisfaction of all specific and general bequests and devises. Typically, a will will specifically dispose of the testator’s tangible personal property and real 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 himself or herself retained, or has given someone else, a power of revocation and 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 which the trustee is to apply in deciding who gets what.

            Stand-by trust – A nominally funded living trust (q.v.) which “stands by” awaiting transfer of property, usually upon the death of the creator of the trust who may have executed a pourover (q.v.) will or designated the trust as the recipient of life insurance proceeds to be paid upon the creator’s death. Also known sometimes as a “pilot” trust.

            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, 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 and tenancy by the entireties 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 which passes under a decedent’s will. A testamentary power of appointment is one which may be exercised by will, as distinguished from a deed or living trust (q.v.).

            Testator (trix) – One who makes a will (said to be “testate” or in a state of “testacy”).

            Unified credit – A credit against the gift tax and, to the extent not so applied, against the estate tax.

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