Glossary of Estate Planning Terms

ANNUAL EXCLUSION

An exclusion from gift taxes for gifts by each donor to each donee which is available on an annual basis. The annual exclusion is currently $11,000.00 per donor, per donee, per calendar year. That is, a couple with three children could give $66,000.00 per year tax free to the next generation. In order to qualify for the annual exclusion, the gift must be a “present interest;” i.e., a gift available immediately to the donee as opposed to one not available until the future or one requiring the consent of some other person.

BENEFICIARY

A person who is, or will be, a recipient of benefits from a will, an estate or a trust.

BYPASS TRUST

A trust which contains property on which federal taxes are paid at the death of the first spouse to die and which typically is not taxed at the second death. Where the optimum marital deduction plan is used, the tax on the property in this trust is paid by the Unified Transfer Credit, so the trust is sometimes called the Credit Shelter Trust.

COMMUNITY PROPERTY

Community property is generally all property, real or personal, wherever located, acquired by a married person during marriage while domiciled in California, except as otherwise provided by statute. This definition is a general statement of the basic rule that all property acquired during marriage is community property, unless it is a spouse’s separate property, or the spouses agree to the contrary. On a spouse’s death, one-half of the community property belongs to the surviving spouse and one-half belongs to the decedent. Each spouse has the power to dispose of his or her half at death by a will or a trust.

CREDIT SHELTER TRUST AMOUNT

The amount of property of a decedent on which the tax is essentially paid by the unified credit; currently $1,500,000. This will in increase over the next several years. Under current law, there will be no estate tax in the year 2010. However, because of the current law’s “sunset” provisions, an estate tax will again be imposed starting in the year 2011. It is likely that additional changes will be made before 2010.

DOD

A common abbreviation for date of death.

ESTATE TAX

Sometimes used synonymously with the federal estate tax. Generically, any tax which is levied upon the estate as a whole, as opposed to being levied upon the takers of the property.

GIFT PROGRAM

Usually a planned program of making annual gifts to beneficiaries within the amount of the annual exclusion.

GRANTOR

In trust usage, the person who creates a trust (also known as trustor or settler).

INCOME BENEFICIARY

The person who will receive the income from a trust for a specified period of time (e.g., the beneficiary’s life). See also, Remaindermen.

INHERITANCE TAX

Any death tax which is levied by a non-federal government (e.g. a state) upon the takers of the property as opposed to the estate as a whole (see estate tax).

INTERVIVOS TRUST

A trust created by agreement currently, as opposed to a testamentary trust created by a Will. Such a trust can be used to hold assets during a person’s lifetime and thereby remove those assets from probate at the person’s death. Also sometimes called a “living trust”.

JOINT AND SURVIVOR ANNUITY

This is an annuity payable to two people (e.g. a husband and wife) through the lifetime of the survivor of the two of them. For qualified plans, this is the type of distribution mandated by law, unless both spouses consent to a different form of payment.

LUMP SUM GIFT

Typically a gift which is made on a one-time basis only, as opposed to a gift program which is designed to use the annual exclusion on a yearly basis.

MARGINAL ESTATE TAX RATE

The tax rate at which the top dollars in an estate are taxed.

MARITAL DEDUCTION

A deduction allowed on the federal estate tax return (Form 706) for property passing in a qualifying manner to a surviving spouse. Prior to 1981, there was a maximum limit of marital deduction which could be taken. This maximum was the greater of one-half of the decedent’s separate property, or $250,000.00. From 1982 on, the marital deduction was allowed without limit for any qualifying property (essentially property which provided the surviving spouse with a fee interest in the asset). For an exception, see Qualified Terminable Interest Property.

MINIMUM DISTRIBUTIONS

In retirement planning, a participant is required to begin making withdrawals from his or her retirement plans in the year after he or she reaches age 70 ½. These withdrawals must meet certain minimum distribution requirements, based on a “Uniform Lifetime Table” published by the IRS.

OPTIMUM MARITAL DEDUCTION

The technique by which only that amount of a decedent’s estate not “sheltered” by the decedent’s unified credit passes under the marital deduction to the surviving spouse.

PROBATE

The process by which assets in the name of a decedent are legally transferred to the decedent’s rightful heirs or beneficiaries.

QTIP TRUST (QUALIFIED TERMINABLE INTEREST PROPERTY)

Although most limited or terminable interests in property (such as life estates) do not qualify for the marital deduction. In 1981, laws were enacted to allow a marital deduction for such interests if all of the income were payable to the surviving spouse in all events during the survivor’s lifetime. This type of property is known as Qualified Terminable Interest Property.

QUASI-COMMUNITY PROPERTY

"Quasi-community property" refers, for purposes of disposition of property on the death of a spouse, to all personal property, wherever located, and all California real property, that would have been characterized as community property had the decedent been domiciled in California at the time of its acquisition.