Estate Planning and Estate Administration Terminology
This Article is intended as a reference tool - a quick reference dictionary without legalese. It is not intended to be read as an article. It contains simple explanations of more than 125 words or phrases often found in wills, trusts and other books and articles about estate planning and estate administration. We hope you will find it a useful reference when reading other documents. The basic concepts - "will" - "estate" - "trust" are explained immediately below. For other legal terms, simply scroll down the alphabetical list.
SEE WARNING AT END OF LIST BELOW.
Will - a document that someone intends to be effective at his or her death that provides for gifts of some or all of the person's property upon his or her death. In Pennsylvania, in order for a will to be effective - (1) it must be in writing, (2) it must demonstrate intent to be effective upon death and (3) it must be signed at the end.
Estate - this is a term that can have many meanings under the law. Most often it is used to mean a decedent's probate estate - the property of a person who has died, subject to the terms of his or her will or the intestate laws if there was no will. Also see the following terms in the list below: Gross Estate; Probate Estate; Taxable Estate.
Trust - a relationship created by one person (the Settlor or Grantor) in which some asset (the Corpus or Principal) is controlled by another person (the Trustee) for the benefit of a third person (the Beneficiary). Two or all three of the persons can all be the same person - that is the Settlor also can be the Trustee or the Beneficiary or both. There are many kinds of trusts. See the following terms in the list below: Credit Shelter Trust; Inter Vivos Trust; Irrevocable Trust; Marital Trust; Residuary Trust; Revocable Trust; Testamentary Trust and other items in that list.
Other Frequently Used Terms - Alphabetically Organized
Administrator - Administratrix - when a person dies, if the Register of Wills designates someone to administer his or her estate, the person designated is the Administrator if a man or the Administratrix if a woman. If the person is designated in the will rather than by the Register of Wills, the person is called the Executor if a man or the Executrix if a woman. The designation might be made by the Register of Wills because the person died without a will, because the will did not name anyone, because the person named in the will cannot or will not serve or because the person designated in the will needs to be replaced for any reason.
Advanced Care Directive - the term used in the Pennsylvania laws to refer to what is more commonly called a "Living Will."
Agent - someone who is given the legal authority to act for another person. Under Pennsylvania law, when someone is named in a Power of Attorney and given the power to act for another person, the person to whom the authority is given is known as an "Agent." That person used to be called an "Attorney-in-fact."
Annual Exclusion - a provision in the Internal Revenue Code that permits a person to make a gift of up to $14,000 per person per calendar year without having to pay any Federal Gift Tax on the gift. The gift must be a "present interest" - meaning a gift that is immediately and unconditionally available to the recipient. Until 2002, the limit was $10,000 per person per year and since then has increased to $11,000, $12,000, $13,000 and the current $14,000 per person per year.
Attorney-in-fact - the former term used to refer to someone who was given legal authority to act for another person in a Power of Attorney. The correct term is now "Agent" under Pennsylvania law.
Beneficiary - the person for whose benefit a trust is created.
Bequest - a gift under a will. Sometimes meant to apply specifically to a gift of personal property as contrasted with a gift of land. A Bequest can be Specific - a gift of a particular type of property (the particular type of property specified) or it can be General - a gift not of any particular type of property, such as a gift of a certain amount of money.
Buy-Sell Agreement - an agreement between owners of a business in which they agree upon what will happen to the business under various circumstances. It can apply to a partnership, a corporation, a limited liability company or any other form of entity. Usually, it provides for restrictions on the sale of the interest of one owner to anyone other than another owner. It usually provides a procedure for the transfer of the interest upon the death of an owner. It usually also provides for a price or price formula. It may provide for a procedure on the occurrence of circumstances other than death, such as disability, retirement, etc. There are different types of these agreements such as a Cross Purchase Agreement, a Stock Redemption Agreement and an agreement that combines the features of both Cross Purchase and Stock Redemption.
Bypass Trust - a trust created for a married person to take advantage of the unified credit in the Federal Estate Tax - sometimes referred to as a Credit Shelter Trust. The assets in this trust are not subject to the Marital Deduction but generally pass tax free to the children or other beneficiaries by taking advantage of the unified credit. The children usually receive their interests upon the death of the surviving spouse. The Bypass Trust was a technique that permited a married couple to both use their individual unified credits, potentially doubling the amount they could pass tax free together. With the addition of portability to the Internal revenue Code effective for year 2011, the technique became less necessary in many circumstances but still may be useful to increase the amount ultimately passed to children or other beneficiaries after the death of the surviving spouse.
Charitable Lead Trust - a trust that contains both charitable and non-charitable beneficiaries where the charity receives an income interest and a non-charitable beneficiary receives the remainder interest in the future. It is often used in a will to give away very large estates on a deferred basis to lower the Federal Estate Tax cost of the gift.
Charitable Remainder Trust - a trust that contains both charitable and non-charitable beneficiaries where the non-charity receives an income interest and a charitable beneficiary receives the remainder interest. It is often used as a gift during the donor's lifetime to give away appreciated property without incurring tax on capital gain and have the charity sell the property and convert it into income producing property. The income is paid to the donor under the terms of the trust.
Codicil - a document used to modify or amend a will. To be valid, a Codicil must meet the same criteria as a Will. See Will.
Community Property - the laws in certain states treat property owned by husband and wife differently from Pennsylvania and most other states. Generally, the husband and wife are treated as having equal interests in all community property. The Internal Revenue Code provides certain differences for community property and the laws of the different community property states are not all uniform.
Corpus - this is another word for "principal" or the original assets of an estate or trust, as contrasted with income. See Principal for a more detailed explanation.
Credit - a provision in a tax law that provides a dollar for dollar reduction in tax. For example, if the tax on an item is $100 and the estate has a tax credit of $75 - the estate only needs to pay $25 - the credit reduces the tax dollar for dollar, without regard to the rate of tax. This is to be contrasted with a deduction, which reduces the total dollar amount subject to tax. For example, if there is $100 of assets and a $15 deduction, the amount subject to tax is $85 - at whatever is the applicable rate of tax. The value of a deduction to the taxpayer depends on the tax rate. A $1 credit is always worth more than a $1 deduction as long as the tax rate is less than 100%.
Credit Shelter Trust - a trust created for a married person to take advantage of the unified credit in the Federal Estate Tax - it "shelters" the unified credit amount to save tax. Sometimes referred to as a Bypass Trust. See Bypass Trust.
Cross Purchase Agreement - a Buy-Sell Agreement in which the individual owners of the business are obligated to buy the interest from the estate of a deceased co-owner. This is contrasted with a Stock Redemption Agreement in which the corporation itself is obligated to purchase the stock interest of a deceased shareholder (owner).
Crummey Power - a power or right given to the beneficiary of a trust that enables that person to withdraw property from the trust whenever a gift or contribution is made to the trust for the benefit of that person. The power is usually granted only for a limited time - often for only 30 days - and the power cannot be exercised after the end of that time period. The power is generally used to make gifts to the trust eligible for the Annual Exclusion from Federal Gift Tax. The power derives its name from Mr. Crummey whose lawsuit established the legal principle that a power like this does make the gift eligible for that exclusion from tax.
Custodial Account - an account (bank, brokerage, etc.) established in the name of one person - the custodian - for a minor under either UGMA or UTMA. The minor is the legal owner of the property in the account. (See UGMA)
Custodian - when a gift is made under either UGMA or UTMA, property is transferred to a person who holds the property for the minor. This person who holds the property is known as the Custodian. (See UGMA)
Decedent - a person who has died.
Deduction - something that can be offset or deducted against the gross estate to compute the taxable estate. For example, the expense of a funeral is a deduction for both Federal Estate Tax and Pennsylvania Inheritance Tax purposes. The funeral expense is deducted from the gross estate and together with the other deductions, results in the taxable estate. A deduction reduces the tax by an amount equal to the tax rate multiplied by the deduction. If the funeral cost $1,000 and the estate's tax bracket is 40 percent, the tax is reduced by $400. A $1 deduction is worth less than a $1 credit because a credit reduces the tax dollar for dollar.
Devise - a gift under a will. Sometimes meant to refer specifically to a gift of real estate.
Devisee - a person who receives a Devise.
Directive - see Advance Care Directive.
Disclaimer - a document or an action by which a person who was to receive some sort of gift gives up his or her right to receive the gift before the gift becomes legally effective. If a qualified disclaimer is properly made, the gift is treated for tax purposes as if it never passed to the person making the disclaimer but instead went directly to the person who receives it in her or his place as a result of the disclaimer. Both Pennsylvania and the Federal government impose strict conditions on a valid disclaimer. If a disclaimer is not properly made, the original intended recipient may be treated as if she or he received the original gift and made another gift to the person who received it as a result of the improper disclaimer - possibly creating a second level of potential gift tax.
Donor - someone who makes a lifetime gift.
Durable Power of Attorney - a "Durable" Power means that the Power survives even if the person granting the power becomes incompetent or incapacitated. See Power of Attorney.
Estate Freeze - one of a number of estate planning techniques used to fix or "freeze" the value of some asset for tax purposes. Many of these techniques are no longer available.
Estate Tax - see Federal Estate Tax and Pennsylvania Estate Tax.
Exclusion - a provision under the law that excludes some asset or some transfer from tax. For example, gifts of present interests up to $14,000 per person per year (previously $10,000 - $13,000) are excluded from Federal Gift Tax.
Exempt Trust - generally used to mean a trust for which the exemption from Federal Generation Skipping Transfer Tax was allocated.
Executor - Executrix - when a person writes a will and in the will designates someone to administer his or her estate after he or she dies, the person designated in the will is the Executor if a man or the Executrix if a woman.
Family Limited Partnership - an entity formed among family members to own or operate property or a business. See Limited Partnership. It is often used to take advantage of valuation discounts in the transfer of family assets to children and to manage and control family assets after such transfers. It also has many other estate planning uses.
Federal Estate Tax - a tax imposed by the Internal Revenue Code on the transfer of a person's property at the time of his or her death. The tax is also imposed on certain transfers made during a person's lifetime, considered the equivalent of a transfer made at the time of death. See the Table of Federal Estate Tax Rates and Thresholds at this Website. The property and transfers subject to this tax are not always the same as under the Pennsylvania Inheritance Tax.
Federal Generation Skipping Transfer Tax - see Generation Skipping Transfer Tax.
Federal Gift Tax - a tax imposed by the Internal Revenue Code on gifts. See the article on Gifts and Gift Tax at this Website.
Fiduciary - a person who acts for another person in various positions that involve significant confidence and trust. The word also can be used as an adjective to describe a relationship that involves significant trust. Under the law in Pennsylvania, a fiduciary includes a Personal Representative, Guardian and Trustee.
Gap Tax - a state death tax, such as the Pennsylvania Estate Tax when it was effective, that imposes a tax on the benefit obtained by a decedent's estate from the State Death Tax Credit provided under the Federal Estate Tax law to the extent that the credit is greater than taxes paid to the state. It taxes the "gap" between the actual state death tax and the Federal credit. Today, because of the phase out of the State Death Tax Credit under Federal law, some states (but not Pennsylvania) create an artificial "gap" between the credit under old Federal law and the tax (if any) paid to the state.
General Bequest - see Bequest.
General Power of Appointment - see Power of Appointment.
Generation Skipping Transfer Tax - a tax imposed by the Internal Revenue Code on transfers made to persons more than one generation removed from the transferor. The gifts may be made during the person's lifetime or upon her or his death. This tax is in addition to Federal Estate Tax or Federal Gift Tax and is imposed at a flat rate equal to the highest Federal Estate Tax rate - currently 40%. There are many complicated rules concerning this tax and its exemptions.
Grantor - a person who creates an inter vivos (lifetime) trust. The term also refers to a person who transfers real estate to another person.
Grantor Trust - a trust in which the Grantor of the trust is considered the owner of the trust for purposes of Federal Income Tax.
GRAT - Grantor Retained Annuity Trust - an irrevocable trust that permits the Grantor to make a gift to the trust and receive an income from the trust after making that gift but still possibly avoid having the trust principal taxed in his or her estate. The Grantor receives a fixed amount of income for a definite number of years. At the end of the time period, the principal passes to a beneficiary who is not a charity. Because the beneficiary cannot use the gifted property for a number of years, the gift is valued at a lower value when it is transferred to the trust - thus the gift tax burden is lower than if the gift had been given directly to the beneficiary. As long as the Grantor is alive when the term of the GRAT ends, the principal in the GRAT is not taxed as part of the Grantor's estate when the Grantor dies. If the Grantor dies before the end of the term of the GRAT, the principal is taxed in his or her estate.
GRUT - Grantor Retained Unitrust - an irrevocable trust, similar to a GRAT but the Grantor receives an income equal to a fixed percentage of the value of the trust principal rather than a fixed amount of income. The value of the principal is determined each year during the term of the trust. See GRAT.
Gross Estate - the gross amount of the assets in an estate subject to potential tax before any deductions or credits are applied.
Guardian - a person who is given the legal authority to act for another person because the other person cannot act for himself due to age (being a minor) or incapacity. A parent is a minor's natural guardian. A court might appoint someone as the guardian of a minor. If a court finds that someone is incapacitated or incompetent, the court will generally appoint someone as the guardian of that person or of that person's estate (property) or both.
Health Care Power - a document in which one person gives another person the legal authority to make health care decisions for the first person if he or she cannot make them for himself or herself. This is a broader power than a Living Will because it is not necessarily limited to situations in which the person is a state of Permanent Unconsciousness or a Terminal Condition. See Living Will.
Holographic Will - a will written entirely in the handwriting of the person who signed it, as contrasted with a typed will.
Inheritance Tax - see Pennsylvania Inheritance Tax
Intangible Personal Property - Personal Property other than Tangible Personal Property. This includes items such as cash, bank accounts, stocks, bonds, other securities, interests in partnerships and other business entities, patents, copyrights, receivables and similar items.
Intestate - Intestacy - to die without a valid will or that portion of a deceased person's property not subject to a valid will.
Intestate Laws - the statutory laws that control the disposition of property where the person died without a valid will or where the valid will did not give away all that person's property.
Inter Vivos - something done during a person's lifetime, as contrasted with "Testamentary" that occurs upon the person's death.
Inter Vivos Trust - a trust created by someone during his or her lifetime. This is contrasted with a trust set forth in someone's will that becomes effective only upon her or his death and is known as a Testamentary Trust.
Irrevocable Life Insurance Trust - a trust set up to own one or more life insurance policies and receive the proceeds from the policies upon the death of the insured person. The trust cannot be changed or revoked once it is established. It is generally used to keep the death benefits from the life insurance policy from being subject to Federal Estate Tax. It might also be used to keep death benefits from being subject to Pennsylvania Inheritance Tax when a surviving spouse-beneficiary dies.
Irrevocable Trust - a trust that generally cannot be changed or revoked once it is established.
Issue - this generally means "descendants."
Joint Tenants with Rights of Survivorship - a form of ownership where, when one of the joint owners dies, the deceased owner's interest in the property automatically, by operation of law, passes to the surviving joint owner or owners.
JTWROS - an abbreviation for "Joint Tenants with Rights of Survivorship."
Legacy - a gift of personal property under a will.
Legatee - a person who receives a legacy.
Letters of Administration - in Pennsylvania, the official document issued (granted) by the Register of Wills to an administrator of an estate that evidences the administrator's authority to act on behalf of the estate. There are different types of Letters of Administration, depending on the circumstances under which the person was appointed as Administrator.
Letters Testamentary - the official document issued by the Register of Wills after a will is admitted to probate. This document appoints a person or persons as the Executor or Executrix of the Estate. See Probate.
Limited Liability Company (LLC) - a form of entity that has the dual features of (1) limited liability for its owners like a corporation and (2) partnership taxation like a partnership for Federal Income Tax purposes. Owners - called members - have this liability protection even if they participate in management. For purposes of Pennsylvania taxes, it does not have the full benefit of partnership taxation, particularly where real estate is a major part of its investment holdings.
Limited Partnership - a form of entity that has limited liability for its owners like a corporation but is a partnership and is taxed as a partnership for Federal Income Tax and Pennsylvania tax purposes. However, in Pennsylvania, it must have at least one general partner subject to unlimited liability - only the limited partners have limited liability.
Limited Power of Appointment - see Power of Appointment.
Living Trust - a trust established by someone during his or her lifetime. This term generally refers to a revocable trust.
Living Will (Directive) - a document that provides instructions for further medical care or termination of medical care where the person who made the document is in a End Stage or Terminal Condition or Permanently Unconscious. It is generally thought of as a document that provides for the termination of treatment, but it could have instructions for continuation of treatment.
Marital Deduction - a provision under the Internal Revenue Code that permits unlimited tax-free gifts (either during lifetime or upon death) to a spouse who is a U.S. citizen.
Marital Trust - a trust for the benefit of a surviving spouse. Generally, it contains provisions that permit the property in the trust to pass to the surviving spouse or to be used for the benefit of the surviving spouse with the Federal Estate Tax or Federal Gift Tax deferred until the death of the surviving spouse.
Non-Exempt Trust - generally used to mean a trust for which the exemption from Federal Generation Skipping Transfer Tax was not allocated.
Orphans' Court - in Pennsylvania that branch of the court system that deals with controversies concerning wills, estates, trusts, guardianships, powers of attorney and other related matters. It is part of the Court of Common Pleas - the trial level county courts in Pennsylvania.
Outright - a gift given to someone to use immediately as contrasted with a gift in trust.
Partial Intestacy - when a person dies with a valid will but that person owned some property that was not given away by the will. The property not given away by the will is subject to the Intestate Laws.
PEF Code - the Probate, Estates and Fiduciaries Code - in Pennsylvania, the statutory laws that control wills, estates, powers of attorney, guardians and related matters.
Pennsylvania Estate Tax - a tax that had been imposed under Pennsylvania law until the end of 2004. The tax was based on the benefit obtained by an estate of a decedent who was a Pennsylvania resident from the State Death Tax Credit provided under the Federal Estate Tax to the extent that the credit was greater than taxes actually paid to Pennsylvania and any other state. It taxed the "gap" between the Pennsylvania Inheritance Tax (and similar applicable taxes of any other state) and the Federal credit. Because of the phase out of the Federal credit, Pennsylvania temporarily changed the law to tax the artificially created "gap" between the State Death Tax Credit under old federal law and the Pennsylvania Inheritance Tax. This change was retroactively repealed in December 2003. The elimination of the Federal Death Tax Credit as of 2005 means that there is no longer any "gap" to tax under the Pennsylvania Estate Tax.
Pennsylvania Inheritance Tax - a tax imposed under Pennsylvania law on the privilege of inheriting property from someone else upon the death of the owner of that property. The tax is also imposed on certain transfers made during lifetime considered to be the equivalent of inheritance upon death. The property and transfers subject to this tax are not always the same as under the Federal Estate Tax. See the separate article at this Website about this tax.
Per Capita - a division of property giving each person an equal share. A distribution to a person's grandchildren, per capita would give each grandchild an equal portion. For example, if the grandmother had three children and child A had one child (grandchild A-1), child B had two children (grandchild B-1 and grandchild B-2) and child C had three children (grandchild C-1, grandchild C-2 and grandchild C-3) each grandchild would receive an equal one sixth share. See Diagram of Per Capita Distribution at this Website.
Per Stirpes - a division of property giving each person a representative share based upon his or her deceased parent's share. A distribution per stirpes to a grandfather's living descendants would pass equally to his children if they were all living. If the grandfather had three children and at least one child (child A) was alive and at least one child (child B) was deceased, the deceased child's share would pass to his or her children (the grandchildren) and all child B's children would share equally if all were alive. If one of B's children (grandchild B-1) was not alive, grandchild B-1's children would share B-1's share equally. See Diagrams of Per Stirpes Distributions and Per Capita Distributions at this Website.
Permanently Unconscious - a term contained in the Pennsylvania statute concerning Living Wills used to describe a condition under which the Living Will becomes effective. It means a medical condition diagnosed as total and irreversible loss of consciousness and capacity for interaction with the environment. Also see Terminal Condition.
Personal Residence Trust - a special type of irrevocable trust to which a person transfers his or her residence. Generally, the transferor retains the right to use the residence for a number of years and the residence passes to another person or persons, usually the children of the transferor. It is typically used to remove the residence from the estate of the transferor for Federal Estate Tax purposes while reducing or eliminating Federal Gift Tax on the transfer by taking advantage of the discounted gift value resulting from the deferral of the ownership by the children. There are many detailed requirements, including technical distinctions between a Personal Residence Trust and a Qualified Personal Residence Trust.
Personal Property - property that is not real estate. Personal property can be tangible or intangible. See Real Property, Tangible Personal Property and Intangible Personal Property.
Personal Representative - in Pennsylvania - an Administrator or Executor.
Personalty - another term for personal property.
Power of Appointment - the power over some property given by one person to a second person to designate (appoint) someone to receive that property at a later date. It is a right to give away someone else's property. This power may be created in a will, in a trust or in another document. If you are given a Power of Appointment, the power may be "general" - where it includes the right to give the property to yourself, your creditors, your estate or the creditors of your estate -- or it may be "special" or "limited" - where you cannot give it to anyone in those four categories. The unlimited power to withdraw property from a trust is also a general power of appointment.
Power of Attorney - a document in which one person (the "Principal") gives another person (now known as the "Agent" - formerly known as the "Attorney-in-fact") the legal authority or power to act for her or him. The power may be all-inclusive - a general power - or may be restricted to only certain acts - a limited power.
Principal - this word has many uses. The two common uses relevant here are (1) the person who signs a Power of Attorney giving someone else (the "Agent") the authority to act for him or her and (2) that portion of the assets in a trust or estate that represents the (a) original assets, (b) other assets added to the trust by the Settlor or someone else, (c) the proceeds of the sale of the original or additional assets and (d) the capital growth or appreciation of those original or additional assets. This is to be contrasted with income - such as interest, rents and royalties derived from the principal assets.
Probate - the formal process of proving the validity of a will. More generally, it is the court process of (1) validating a will after a person's death, (2) appointing an executor or administrator to manage the affairs of the estate and (3) distributing the deceased person's property to his or her survivors in accordance with the terms of the will, if one exists, or in accordance with the terms of the intestate laws if no valid will exists. In Pennsylvania, the probate proceedings are conducted by the Register of Wills. See the chart containing probate fees in the five-county Philadelphia metropolitan area of Pennsylvania.
Probate Estate - the portion of a deceased person's property subject to the probate process and the claims of his or her creditors. There may be items included in the person's Taxable Estate not included in the probate estate,
QDOT Trust - Qualified Domestic Trust - a special trust used for non-citizen spouses. It permits the deferral of Federal Estate Tax on gifts to spouses who are not United States citizens if its technical requirements are met.
QTIP Election - an option provided under the Internal Revenue Code to have all or any portion of the property in a QTIP Trust subject to the Marital Deduction. See QTIP Trust and Marital Deduction.
QTIP Trust -Qualified Terminable Interest Property Trust - a trust created to take advantage of section 2056(b)(7) of the Internal Revenue Code that permits the Testator or Donor to give his or her spouse an income only interest in the trust without giving the spouse the right to principal and still have the trust qualify for the Marital Deduction from Federal Estate Tax or Federal Gift Tax. The estate is given an option or election whether to have the property qualify for the Marital Deduction, thus providing flexibility. Under the terms of the QTIP Trust, all of the income must be paid to the spouse, and no one but the spouse may receive any principal during the life of the spouse. There are also other, more technical requirements not addressed here.
Qualified Personal Residence Trust - see Personal Residence Trust.
Real Property - property that consists of land or buildings as contrasted with personal property like furniture, cash, stock, etc. It includes the land, things built on the land, things permanently attached to land or buildings and things growing on the land.
Register of Wills - the official in each county in Pennsylvania who has jurisdiction over the probate of wills and the appointment of Executors and Administrators of Estates.
Renunciation - a document in which a person gives up or renounces the right to serve as an executor or as an administrator or as a trustee.
Residuary Trust - a trust created to give away the residue of the estate. When the residue is given away in trust, the trust is referred to as a Residuary Trust.
Residue - the portion of an estate not given away by gifts of specified things or specified amounts to specified persons that is the "catch-all" gifts after the other gifts are made.
Reverse QTIP Election - an option provided to taxpayers under the Internal Revenue Code relating to Generation Skipping Transfer Tax (the "GSST") when the Generation Skipping Transfer Tax exemption was larger than the Unified Credit Amount under the Federal Estate Tax. A person could use a Credit Shelter Trust to shelter an amount from Federal Estate Tax equal to the Unified Credit Amount - $1,000,000 in 2002 and 2003. This amount was treated as "passing" from the first spouse to die. Generally, the balance of the estate took advantage of the Marital Deduction and was later treated as "passing" from the surviving spouse. If an amount greater than the Unified Credit Amount was treated as passing from the first spouse, it would have been subject to immediate Federal Estate Tax. That spouse could also make tax exempt generation skipping gifts of up to $1,100,000 but only if the full $1,100,000 was treated as passing from that first spouse - a $100,000 shortfall if limited to the Unified Credit Amount in 2002 or 2003. If the Reverse QTIP Election was not available - there would have been a dilemma - to take full advantage of the GSST exemption would subject the estate to some immediate Federal Estate Tax. This election permitted the taxpayer to treat the same gift as having passed from the first spouse for purposes of the GSST and at the same time treat it as passing from the surviving spouse for purposes of the Federal Estate Tax. This permitted taking full advantage of the GSST exemption and at the same time gaining the full postponement of the Federal Estate Tax otherwise permitted by the use of a Marital Deduction gift to the surviving spouse. The Marital Deduction had to be in the form of a QTIP Trust to use this election. The Unified Credit Amount was increased to $1,500,000 for 2004, therefore, the Generation Skipping Transfer Tax exemption was no longer greater than the Unified Credit Amount. Today they are both $5,340,000 so the Reverse QTIP Election has no current use.
Revocable Trust - a trust that can be changed or revoked - generally at any time.
Settlor - the person who creates an inter vivos (lifetime) trust.
Short Certificate - a document that confirms that an Executor or Administrator continues to have the legal authority to act on behalf of an Estate. Formerly, these documents were prepared on shorter pieces of paper than the legal size Letters Testamentary or Letters of Administration - thus the name - "Short Certificate." Today, generally, all these documents are prepared on the same letter size paper but the name has remained.
Sole Use Trust - a trust established for the sole benefit of the surviving spouse - none of the income from the trust and none of the trust's principal can be used for anyone other than the surviving spouse during the lifetime of the surviving spouse. Generally used in Pennsylvania to qualify the trust for certain elections to defer Pennsylvania Inheritance Tax until the death of the surviving spouse.
Special Power of Appointment - see Power of Appointment.
Specific Bequest - see Bequest
Springing Power - a Power of Attorney that only becomes effective - "springs" into being - upon the happening of one or more conditions or contingencies - for example, if the Principal becomes incapacitated.
Sprinkle Trust - a trust that permits the trustee to give income ("sprinkle income") to and among various beneficiaries or give corpus ("spray corpus") to and among various beneficiaries as the trustee deems appropriate.
Spray Trust - see Sprinkle Trust.
Standby Trust - a trust established - not for immediate use - but to be used if one or more conditions occur - for example, if the beneficiary becomes incapacitated.
State Death Tax Credit - a credit that had been provided in the Internal Revenue Code for taxes paid by a decedent's estate to the state where the decedent resided or had property. The credit was based upon a table in the Internal Revenue Code and was related to the size of the estate. This credit has been phased out under current law. As of January 1, 2005 it has been replaced by a deduction instead of a credit.
Stock Redemption Agreement - a Buy-Sell Agreement in which the corporation itself is obligated to purchase the stock interest of a deceased shareholder (owner). This is contrasted with a Cross Purchase Agreement in which the individual owners of the business are obligated to buy the interest from the estate of a deceased co-owner.
Tangible Personal Property - items of personal property that can be held or touched such as cars, jewelry, furniture, collections, etc. as contrasted with intangible personal property that merely represents value such as stock, bonds, cash, etc. See Intangible Personal Property.
Taxable Estate - the dollar amount subject to Federal Estate Tax or Pennsylvania Inheritance Tax (whichever is applicable) after the Gross Estate has been determined and all the appropriate deductions have been applied.
Tenants by Entireties - a form of ownership of property similar to Joint Tenants with Rights of Survivorship but only between husband and wife. In Pennsylvania, it has the added advantage of protecting the property from the claims of a creditor of only one of the spouses.
Tenants-in-Common - a form of property ownership by multiple persons where each owner can sell or give away her or his interest in the property during her or his lifetime or leave her or his interest in the property to another person upon the owner's death. Upon the death of one owner, her or his interest in the property does not pass by operation of law to the other co-owner or co-owners.
Terminal Condition - a term contained in the Pennsylvania statute concerning Living Wills used to describe one of the conditions under which the Living Will becomes effective. It means an incurable and irreversible medical condition in an advanced state caused by injury, disease or physical illness that will, in the opinion of the attending physician, result in death regardless of continued treatment. Also see Permanently Unconscious.
Testamentary Trust - a trust created in a will and that becomes effective only upon the death of the Testator.
Testament - as in "Last Testament" - another name for a will.
Testator - Testatrix - the male and female versions of a word used to describe the person whose will is being discussed. If we are looking at the will of Harry Brown, Harry is the Testator.
Totten Trust - a bank account in which the title contains the words "in trust for . . " - also known as an "ITF" account. This is not a true trust but rather a form of beneficiary designation. In Pennsylvania, if the account reads "John Smith in trust for Mary Jones" - the account is owned by John Smith during his lifetime and Mary Jones has no rights in the account. It merely passes to Mary Jones upon John Smith's death. It is part of John Smith's taxable estate both for Federal Estate Tax and Pennsylvania Inheritance Tax purposes.
Trustee - the person designated in a trust to administer the trust assets for the benefit of the Beneficiary. The Trustee and the Beneficiary are usually different people but could be the same person.
UGMA and UTMA - Uniform Gifts to Minors Act and Uniform Transfers to Minors Act - laws that permit a person to make a gift to a minor by naming someone as the custodian for the minor and registering the gifted property in the name of the custodian, as custodian for the minor. Generally, the custodian may be the person making the gift.
Valuation Discounts - various techniques or methods used to reduce the value of property that is given away to reduce the potential Federal Gift Tax on that gift. These include minority discounts, lack of marketability discounts, blockage discounts, lock-in discounts and fractional interest discounts.
Copyright 2014 Marc H. Jaffe
Warning - this page is not intended as legal advice. It is only for informational purposes. It is not a substitute for legal advice from an attorney based upon your own particular circumstances. The definitions are based on Pennsylvania and Federal law and not upon the laws of any other jurisdiction. The laws of other states may involve different definitions of the same or similar terms. Many of the items discussed above have additional requirements that were not discussed here for purposes of simplicity. You should consult with your attorney before taking any action or relying on any information contained here.