Below are some of the most common estate planning terms and their definitions.
* If you need clarification on any of these topics, feel free to contact us.
Advance Health Care Directive
These documents, which include health care power of attorney, living will, and HIPAA authorization, state what kind of treatment you would like in medical emergencies and appoint someone to make medical decisions on your behalf if you are incapacitated and unable to make your own decisions. Also referred to as an Advance Medical Directive, Physician’s Directive, or Written Directive.
Any item you own that has value.
The person(s) or organization who receives assets under a legal document such as a will, trust, or insurance policy.
To transfer property to a beneficiary through a will.
Assets disposed of in a will or trust to a specific person or organization.
Profit on the sale or exchange of a capital asset. Capital gains receive more favorable tax treatment than ordinary gains. A “long term” capital gain exists when you sell or exchange a capital asset that you’ve had for more than a year and you earn a profit. A “short term” capital gain exists when you sell or exchange a capital asset that you’ve had for less than a year and you earn a profit. Short term capital gains are treated as ordinary income for income tax purposes.
Loss from the sale of a capital asset. You can offset ordinary income with capital losses.
An addition, alteration, substitution, or deletion of any part of a will. A codicil must be signed and witnessed the same way as a will; otherwise, the codicil may be invalid.
Your children, grandchildren , great-grandchildren, etc. It does not include your parents, siblings, or any collateral relative (like cousins).
Property distributed by a will.
To purposely exclude a potential heir (spouse, child, grandchild) from receiving an inheritance.
All of the assets and liabilities that a person has. The estate of a deceased person consists of the deceased person’s assets and liabilities as of the date of his/her death.
Preparation for the distribution of a person’s estate by using wills, insurance, gifts and trusts to help minimize the impact of federal and state taxes.
A tax imposed by the federal government and by some states on the transfer of property at death. Also called the Death Tax.
The person who is chosen to manage the distribution of an estate. Among other things, the executor files tax returns, pays bills, makes distributions, signs off on court documents, makes decisions, and handles the paperwork for your estate. Also known as a personal representative.
Family Limited Liability Company (FLLC)
A type of limited liability company (LLC) comprised only of related family members, usually created by parents in order to pass on a family business or investments to their children and to save on estate taxes.
Family Limited Partnership (FLP)
A type of partnership comprised only of related family members, usually created by parents in order to pass on a family business or investments to their children and to save on estate taxes.
A graduated federal tax paid by persons who make gifts exceeding a level determined annually by the IRS. Some states tax the person receiving the gift, but not in Maryland.
Grantor Retained Annuity Trust (GRAT)
An estate planning technique that can minimize tax liability when a person wants to transfer substantial sums of money while still receiving annual income from the trust for a specified number of years.
The total value of all your assets (things like your car, life insurance (face value), real estate, retirement accounts, investment accounts, bank accounts, and any other valuable property).
An adult appointed to care for a minor or special needs child. The guardian takes over the parent’s role, including handling matters related to education, health, religion, and other matters.
Appointment of a person who must care for another person and/or that person’s property.
Health Care Power of Attorney
Gives the person you designate broad powers to make health care decisions for you, including power to require, consent to or withdraw any type of personal care or medical treatment for any physical or mental condition and to admit you to or discharge you from any hospital, home or other institution.
Generally, a person who would be entitled to receive property from your estate in the event you did not have a will.
Form giving permission (or a waiver of permission) for the use and disclosure of your health information and medical records. This form gives your loved ones permission to review, use and disclose your medical information in an emergency.
Tax imposed upon people who inherit money. This tax is imposed by some states, but not the federal government.
Relates to a person who either died without a will or the will cannot be located. To learn more read “Why You Need a Will in Maryland.”
A trust that cannot be changed or altered. Taxable income from the trust goes to the beneficiaries or to the trust itself.
Your offspring starting with your children, then grandchildren, etc. (i.e., your descendants). Legally adopted children and grandchildren are included.
A way for two or more people to share ownership of real estate or other property. In almost all states (including Maryland), the co-owners (called joint tenants) must own equal shares of the property. When one joint tenant dies, the other owner(s) automatically own the deceased owner’s share as opposed to be distributed per the deceased owner’s will.
When one of your beneficiaries dies before you do, the portion of the estate that your beneficiary would have received had he or she been alive at your death will then go to someone else.
A legal document that allows you to make a written declaration instruction your physician to withhold or withdraw death-delaying procedures in the event of a terminal condition. A living will allows your rights as a patient to be respected even after you are no longer able to participate actively in the decision yourself.
The total value of your assets minus the total value of your liabilities.
A person authorized by the state to attest to the authenticity of a signature. A notary public’s signature and seal is required on many legal documents.
Describes the way a bequest is to be divided among a person’s issue, if the person is named as a beneficiary, but dies before the testator. A per stirpes bequest would distribute the deceased person’s share to his or her children equally.
A state court proceeding that verifies the validity of a will, appoints an administrator to settle a deceased person’s estate, and distributes property.
Property Power of Attorney
Legal document used to grant an agent broad powers to handle your property, which may include powers to pledge, sell or otherwise dispose of any of your property without advance notice to you or approval by you.
The part of the estate remaining after all liabilities and specific bequests have been paid.
Revocable Living Trust
A trust that can be modified, altered, or terminated by the person who created it at any time during his or her life.
The person creating the will must be able to recognize the size and value of his estate and have an understanding that he is making a plan to dispose of the estate after his death.
If a beneficiary does not meet the survivorship requirement, any bequests to this person shall be transferred to a substitute (“successor”) beneficiary. If no successor is named, or if the successor does not meet this requirement, the bequest shall be ignored completely, just as if the bequest had never been written.
The person who will take over in the event the initial guardian is unable or unwilling to act as guardian.
Successor Personal Representative
This person will act as your personal representative in the event your initial personal representative is unable or unwilling to act.
A person who creates and signs his/her will.
An arrangement where a trustee holds property on behalf of one or more beneficiaries.
A person or entity named in the trust to manage its assets and distribute them according to the terms of the trust.
Uniform Transfer to Minors Act (UTMA)
Provides for the transfer of property to a minor by allowing a custodian to hold and manage the minor child’s property. In Maryland, the custodian is in charge until the child turns 21.
A legal instrument used to name guardians of your minor or special needs children, name the executor of your estate, and direct the disposition of your property upon your death.
The person who observes you signing your will. The state of Maryland requires two witnesses. They cannot be related to you and cannot be entitled to receive anything under your will.
*Contributing sources: Bankrate.com’s Estate Planning Toolkit, IRS.gov, Investopedia.com, and Nolo.