Frequently Used Terms

Breach of Fiduciary Duty

The personal representative of an estate or the trustee of a trust owes the beneficiaries of the estate or trust certain fiduciary duties of honesty, prudence and loyalty. When those duties are violated by a trustee or personal representative, a cause of action arises.

Build Up Equity Retirement Trust (BERT)

The BERT is a tax sheltered irrevocable trust that is set up by each spouse for the benefit of the other spouse. Gifts are made to the trust annually and, while still accessible, the assets are exempt from gift tax and estate tax. Also, because the trust is irrevocable the assets are protected from creditors and predators. Then upon the spouses death the assets are passed on to intended beneficiaries.

Crummey Power

For gifts to a trust to qualify for the annual exclusion, tax rules require the gift be of a “present interest.” In other words, the gift recipient must be able to access the gifted property. To maintain the desired flexibility of the trust and qualify for the annual exclusion, the trust should include a Crummey withdrawal right, or “Crummey power.” The Crummey power gives a beneficiary the right to withdraw assets you gift to the trust. The beneficiary must have notice of his or her Crummey power and have a reasonable amount of time to exercise the power before it lapses. Once the time period expires, the beneficiary no longer has the ability to withdraw the assets you gift to the trust.

Durable Power of Attorney

A durable power of attorney allows someone else to handle financial matters for assets in your individual name, particularly retirement plans. It is also used to put assets in your trust if you become mentally disabled prior to your trust becoming fully funded.

Elective Share

Some states provide an elective share to surviving spouses, which provides the surviving spouse with a portion of the deceased spouse’s estate according to a statutory formula. Deadlines may be associated to make the elective share.

Estate Litigation

Estate Litigation concerns actions brought in court against a deceased person’s estate. Types of actions include claims and lawsuits.

Funding

Most assets will need to be re-titled into the trust to make the trust effective for disability planning and to avoid probate. Funding a trust is just as important as creating the trust.

Grantor Retained Annuity Trust (GRAT)

A GRAT is an irrevocable trust in which the grantor transfers assets into the trust and retains the right to annual payments of a fixed amount of principal and interest for a prescribed number of years at the end of the period the assets go to the beneficiaries in accordance with the grantors intentions.

Health Care Surrogate / Health Care Power of Attorney

This instrument designates a health care surrogate or health care power of attorney if you are incapable of making health care decisions or providing informed consent. It must also account for HIPAA (Health Insurance Portability and Accountability Act) of 1996 to be effective.

Inheriting Trust

An Inheriting Trust is a special type of dynasty trust that is designed by the inheritor to receive an inheritance. The trust offers greater asset protection and estate tax planning while still giving the inheritor all the rights, benefits and control over the trust property that the individual would have through outright ownership.

Intentionally Defective Grantor Trust (IDGT)

The Intentionally Defective Grantor Trust (also known as a Grantor Deemed Owners Trust) is an irrevocable trust you establish that is excluded from your estate for federal estate tax purposes, yet owned by you for income tax purposes. The sale can be in exchange for a promissory note. Similar to a GRAT, the sale of the promissory note provides gift and estate tax savings if the return on the IDGT exceeds the interest rate on the note.

IRA Inheritance Trust (IRAIT)

Eventually we are all going to pass on to our greater glory. It is how we are remembered by those who loved us and knew us that keep us alive forever. With the IRA Inheritance Trust a check will be coming to your beneficiaries with your name on it for their benefit every quarter. This will be part of your legacy.

Irrevocable Life Insurance Trust (ILIT)

The irrevocable life insurance trust or ILIT is a special type of trust, that holds and is the beneficiary of, a special type of insurance. This insurance inside this trust is guaranteed level premium, guaranteed benefit and can be placed on the life of one spouse or both spouses. The payout from the policy is not estate taxable and is specifically earmarked to pay the estate taxes.

Limited Liability Companies (LLC)

An LLC is a business entity formed under the laws of specific states and is commonly used for estate compression for tax purposes and asset protection. Shareholders or “Members” of the LLC cannot be personally liable for the debts of the LLC. Also, the assets that are owned by the LLC can be “compressed” and used for wealth transfer.

Lack of Capacity

Under the law, a testator is required to have mental competency to make a Last Will and Testament or trust and to understand the nature of his or her estate assets and the people to whom the estate assets are going to be distributed. A will or trust can be declared void if lack of capacity can be proven. Usually, incompetence is established through a prior medical diagnosis of dementia, senility, Alzheimer’s or psychosis.

Lack of Formalities

Proper execution of a Last Will and Testament or trust requires that the will or trust be signed by the testator and witnessed and signed by two unrelated parties. A Last Will and Testament can be contested on the basis that it was not properly drafted, signed, or witnessed in accordance with the law.

Living Will

This instrument directs your physician as to whether or not to cease life-sustaining procedures which would serve only to prolong your death if you are terminally ill. It gives guidelines for your physician to follow, as well as clarifies your intent as to life-sustaining procedures.

Personal Representative (“PR”)

The person responsible for settling an estate.

Pour Over Will

Upon your death, your pour-over will leaves any property to your living trust that you did not put into it before your death. It functions as a safety net to make sure property you neglected to place in your trust can ultimately be managed by your Trustees pursuant to your instructions.

Probate

The official proving of a will.

Qualified Personal Residence Trust (QPRT)

The QPRT allows you to move your primary or secondary residence out of your taxable estate while still allowing you to retain complete possession and use of the residence. After your passing the home is then transferred to your intended beneficiaries. This technique, while effective at reducing your taxable estate, can become complicated if you wish to sell the property in the trust.

Quick Claim Bill of Sale

This instrument places your personal property (e.g. furniture and jewelry) into your trust, thus avoiding the need to probate your personal property. This is also known as an “Assignment of Personal Property”.

Quitclaim Deed

Quitclaim deeds are most often used when transferring property between family members, from an individual to the individual’s trust or to cure a defect on the title. Although they are common, they are generally used when the parties know each other and are willing to accept the risks associated with the lack of buyer protection as a quitclaim deed contains no title covenant and offers the grantee no warranty as to the status of the property.

Revocable Living Trust

The revocable living trust, sometimes simply called a living trust, is a legal entity created to hold ownership of an individual’s assets and acts as a will substitute. This instrument contains in-depth instructions for your care and the management of your assets if you become mentally disabled, and for the care of your loved ones upon your death. Furthermore, it efficiently transfers your property to your beneficiaries at the time of your death and when fully funded avoids probate and allows for the maximum utilization of estate tax exemptions.

Successor Trustee

The person who assumes control of the trust after the initial trustee dies or becomes unable to continue with his or her responsibilities. Once the successor trustee has assumed control, he or she is responsible to ensure that your property is distributed to your beneficiaries according to the trust terms.

Undue Influence

When the testator is compelled or coerced to execute a will or trust as a result of improper pressure exerted on him or her, by a relative, friend, trusted advisor, or health care worker, a cause of action arises. In many cases, the undue influencer will upset a long established estate plan where the bulk of the estate was to pass to the descendants or close relatives of the decedent. In other cases, one child of the decedent will coerce the decedent to write the other children out of the will or trust.