Chicago Estate Planning Council

Glossary of Terms


Frequently Asked Questions

What is probate?
What property is subject to probate?
What is a Will?
What are the requirements to make a Will?
What is an executor?
What are the duties of an executor?
What happens when a person dies without a Will?
What is intestacy?
Who can prepare a Will?
What is a trust?
Who are the parties to a trust?
What is a trustee?
What are the duties of a trustee?
What is the difference between an executor and a trustee?
What is the difference between a revocable and an irrevocable trust?
What are some of the types of trusts?
When is a trust helpful?
What is a guardian?
What are the differences between a guardian of the person and the guardian of the estate?
What are the duties of a guardian?
What are standby guardians, short-term guardians and temporary guardians?
What are the different ways that property can be owned by more than one person
What is Joint Tenancy?
What is Tenancy by the Entirety?
What is Tenancy in Common?
How are the different forms of ownership created?
What are Payable on Death (POD) and Transfer on Death (TOD) accounts? What is a Transfer on Death Instrument for residential real estate?
What is a Power of Attorney? What are the types of Powers of Attorney?
Who should act as Agent under a Power of Attorney?
What is a Power of Attorney for Property?
How much authority is given to the agent under a Power of Attorney for Property?
Are there any requirements for signing a Power of Attorney for Property?
What is a Power of Attorney for Health Care?
What powers are granted to an agent under a Power of Attorney for Health Care?
What authority does an agent under a Power of Attorney for Health Care have regarding life-sustaining treatments?
When does a Power of Attorney for Health Care become effective?
Who can act as agent under a Power of Attorney for Health Care?
Are there any requirements for signing a Power of Attorney for Health Care?
What is the difference between a Living Will and a Power of Attorney for Health Care?
Do I need a Living Will if I have a Power of Attorney for Health Care?
What is an organ donation? How do I make an organ donation?
Why is life insurance part of the estate planning process?
What are the different types of life insurance?
Do states impose death taxes? How does a state death tax differ from the federal estate tax?
What is the federal gift tax?
What is the annual gift exclusion?

I’ve heard the U.S. Supreme Court struck down the “Defense of Marriage Act.
My same-sex spouse and I are planning to get married! Do we still need estate planning?
What happens if I travel from Illinois to another state that doesn’t recognize same-sex marriages?

GLOSSARY OF TERMS FOLLOWED BY FREQUENTLY ASKED QUESTIONS
                                                                                                                                   
This material is written by the Chicago Estate Planning Council for general informational purposes only and does not constitute legal, accounting, tax or other professional advice of any kind; nor does it represent any undertaking to keep recipients advised of legal developments.  Readers should not act upon this without seeking advice from professional advisers.  The application and impact of relevant laws will vary from jurisdiction to jurisdiction.  The Chicago Estate Planning Council makes no representation as to the accuracy or completeness of the information and opinions presented.  All information contained herein is subject to change.
                                                                                                                                   
            IRS Circular 230 disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Glossary of Estate Planning Terms
Administrator:  The personal representative appointed by the court to administer the probate estate when there is no executor nominated in a will who is willing and able to act.
Agent:  In estate planning, the person given the power to make decisions or to act under a power of attorney.  Also called the “attorney‑in‑fact.”
Amendment:  In estate planning, a document that changes certain terms of a trust.
Annual exclusion:  The gift tax exclusion that permits an individual to give up to $13,000 per individual each year without gift tax and without using any portion of such individual’s unified credit.  The annual exclusion was originally $10,000 and is indexed for inflation since 1999.  Not all gifts to trusts qualify for the annual exclusion, only gifts to specially designed trusts.
Attorney‑in‑fact:  The person given the power to make decisions or to act under a power of attorney.  Also called the “agent.”
Beneficiaries:  The persons who receive, or may receive, distributions from an estate, a trust, an insurance contract, a retirement plan or other financial arrangement.
Codicil:  A document that changes certain terms of a will.
Decedent:  An individual who died.
Descendant:  Any person in the direct line of descent from an individual.  This includes the individual’s children, grandchildren, great‑grandchildren, etc.
Donor:  The person who makes a gift.
Estate:  This can have many meanings, depending upon the context.
                        1.   Probate estate:  The assets held in a person’s individual name at death that will pass pursuant to the terms of his or her Will.  A person’s probate estate is part of his or her gross estate, but the gross estate may include many assets that are not part of that probate estate.
                        2.   Gross estate:  This includes all assets that are counted in determining a decedent’s estate taxes.
                        3.   Taxable estate:  The gross estate, less any deductions.
Estate tax:  A tax imposed at death on the transfer of assets from the decedent to the beneficiaries.
Federal Exclusion Amount:  The cumulative amount that an individual can give to others without federal gift or estate tax.  The Federal Exclusion Amount for 2012 is $5,120,000.
Executor:  The person named in the will and appointed by the court to administer the probate estate.  Both an administrator and an executor are sometimes called a “personal representative.”
Fiduciary:  A trustee, executor or agent under a power of attorney.
Generation‑skipping transfer tax:  A tax imposed on the transfer of assets to a grandchild or more remote descendant, or to certain non‑relatives who are more than thirty-seven and one‑half years younger than the donor.
Gift tax:  A tax imposed on the transfer of assets during life.
Grantor:  A person who establishes a trust or makes a contribution to a trust.
Guardian:  A guardian is a person (either an individual, a corporation with trust powers, a public agency or a not-for-profit corporation) who is charged with the care of (a) any individual who is a minor (under the age of 18) or an individual (18 or older) who has been adjudged by the court to be unable to care for himself or herself (disabled adult) or (b) the assets of any such individual.
Heirs:  The persons who receive a decedent’s probate estate if there is no will.
Income:  For purposes of trust distributions and accounting, interest, rent and dividends received by a trust, less certain trust expenses that are allocated to income under state law.
Inter Vivos:  Latin for “during life.”
Intestate:  Without a will.  A person who dies without a will is said to have died intestate.
Intestate Succession.  The manner in which the law provides for disposition of a person’s property among his heirs in an intestate (no Will) situation.
Irrevocable:  Cannot be changed, amended or revoked.
Issue:  Descendants.
Living Trust:  A trust created by an individual during life that benefits the individual during life and can be revoked or amended by the individual during life.  Living Trusts are commonly used to avoid guardianship proceedings in the event of incapacity and to avoid probate proceedings at death.  Also called a “revocable trust.”
Living Will:  A document under which an individual directs his or her physician not to use life‑sustaining treatment under certain circumstances.
Per capita:  Literally “by the heads.”  A distribution to descendants per capita means that each living descendant receives an equal share.  For example, if Parent had two children, A and B, and A predeceased Parent leaving two children, A‑1 and A‑2, Parent’s estate would be divided so that each of B, A‑1 and A‑2 received one‑third.
Per stirpes:  Literally “by the stocks.”  A distribution to descendants per stirpes means that the assets are divided into equal shares so that there is one share for each living child and one share for each deceased child who has a descendant then living.  The share for each deceased child is then reallocated for the deceased child’s living descendants pursuant to the preceding sentence.  For example, if Parent had two children, A and B, and A predeceased Parent leaving two children, A‑1 and A‑2, Parent’s estate would be divided so that B received one‑half and A‑1 and A‑2 each received one‑fourth.
Power of Appointment:  A power over a trust that permits an individual (the “power holder”) to direct that the trust assets be distributed among a group of beneficiaries specified in the trust.  The trust may specify whether the power of appointment can be exercised during the power’s holder’s life, at the power holder’s death, or at either time.  The group of beneficiaries to whom the power holder may appoint can be defined broadly (e.g., “to any person or organization”) or narrowly (e.g., “to his or her descendants”).  Unless otherwise specified in the trust, the power holder can direct the amount or portion of the trust that each person should receive and whether the distribution is distributed outright or further held in trust.
Power of Attorney:  A document under which an individual (the “principal”) gives another person (the “agent”) the power to make certain decisions or to take certain actions for the principal.  Powers of Attorney are generally effective only while the principal is living.
                        1.   Power of Attorney for Health Care:  A document under which an individual appoints an agent and gives the agent the power to make health care decisions for the individual.
                        2.   Power of Attorney for Property:  A document under which an individual appoints an agent and gives the agent the power to take actions with respect to the individual’s property.  A Power of Attorney for Property can be useful to avoid guardianship proceedings if the principal becomes incapacitated.
                        3.   Durable Power of Attorney:  A Power of Attorney that stays in effect even after the principal becomes incapacitated.
Principal:  For purposes of trust distributions and accounting, the assets of a trust other than income.  Trust principal includes capital gains and proceeds from the sale of trust assets.
Probate:  The court procedure of administering the estate of a deceased person and distributing the assets to the appropriate beneficiaries.
Probate estate:  The assets subject to probate, which generally only include assets titled in the decedent’s individual name, the decedent’s interest in assets titled in tenancy in common and assets payable to the estate at death.
Revocable:  Can be revoked or undone.  For example, the settlor of a revocable trust can revoke the trust and take back the assets of the trust.
Revocable Trust:  A trust created by an individual during life that benefits the individual during life and can be revoked or amended by the individual during life.  Revocable trusts are commonly used to avoid guardianship proceedings in the event of incapacity and to avoid probate proceedings at death.  Also called a “living trust.”
Rule Against Perpetuities:  The rule that says a trust must end no later than 21 years after the death of the survivor of a specified group of individuals, each of whom was living when the trust was created (the “measuring lives”).  Often the descendants of the grantor living when the trust was established are the measuring lives.  A number of states have repealed the rule against perpetuities and now allow trusts to last indefinitely.  Illinois allows a trust to opt out of the rule against perpetuities.
Settlor:  The person who establishes a trust.
Testamentary:  At death.
Testator:  The person who makes a Will.
Transfer taxes:  Taxes imposed on the transfer of assets, including gift taxes, estate taxes and generation‑skipping transfer taxes.
Trust:  A form of ownership in which one party (the trustee) holds and administers the property for the benefit of another (the beneficiary).
Trustee:  The person who administers a trust for the benefit of the beneficiaries.
Ward:  The person (a minor or disabled person) protected by a guardianship.
Will:  A document that directs the disposition of an individual’s probate assets at death.

 

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