Southwest Florida


Here are some terms and definitions we’ve compiled from various sources including the American Bar Association (ABA) and Nolo.

Attorney-in-Fact – A person named in a written power of attorney document to act on behalf of the person who signs
the document (the Principal). The Attorney-in-Fact’s power and responsibilities to handle the Principal’s financial affairs depend on the specific powers granted in the Power of Attorney document. An Attorney-in-Fact is also called the Agent of the Principal.

Beneficiary – A person or organization legally entitled to receive benefits, such as income or principal, through a legal device, such as a will, trust, or life insurance policy. 

Charitable lead trust – A kind of charitable trust. The person (grantor) who sets up the trust transfers assets to it, and income from the trust property then goes to the charity for a set period of time. Then the trust property goes back to the person who set up the trust (or another beneficiary that person
named, usually the grantor’s children or grandchildren). Typically, the charity serves as trustee of the charitable trust. 

Charitable remainder trust – A kind of charitable trust in which someone (the grantor/donor) places substantial assets into an irrevocable trust. The trust is set up so that the donor (or other beneficiaries named in
the trust) receives trust income for a number of years or for life, after which the assets go to a tax-exempt charity. The IRS allows the donor to take a large income tax deduction in the year the assets are donated to the
trust. The tax savings are sometimes used to buy an insurance policy on the
life of the donor payable to children or grandchildren at the donor’s death. If appreciated assets are transferred to a charitable remainder trust and sold by the trust, the trust does not pay capital gains tax.  Instead, the non-charitable beneficiaries are taxed on a portion of the capital gains as they receive their annual distributions and, in this manner, the capital gains tax is deferred. So, a charitable remainder trust allows the donor to make a large gift to charity, receive income from the trust, and still make a large gift at death to family members. 

Codicil – A supplement or addition to a Will. A codicil may explain, modify, add to, subtract from, qualify, alter, or revoke existing provisions in a Will. Because a codicil changes a Will, it must be signed in front of witnesses, just like a Will.

Community property – A form of ownership in certain states, known as community property states, under which property acquired during a marriage is presumed to be owned jointly. All earnings during marriage and all property acquired with those earnings are owned in common and all debts incurred during marriage are the responsibility of both spouses. Community property laws exist in Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington, and Wisconsin. In
Alaska, couples can create community property by written agreement.

Conservator – An individual or a corporate fiduciary appointed by a court to care for and manage the property of an incapacitated person. A conservator may also be called a guardian, committee, or curator. In Florida, this role is known as a “guardian of the property.”

Coverdell Education Savings Account (ESA) – a trust or custodial account designed to enable the individual to save education funds on a tax-deferred basis and make tax-free withdrawals to pay for qualified education expenses. The amount that an individual can put into an ESA each year for any qualified beneficiary is $2,000 (2019).

Crummey trust – An irrevocable trust that grants a beneficiary of the trust the power to withdraw all or a portion of assets contributed to the trust for a period of time after the contribution. The typical purpose of a Crummey trust is to enable the contributions to the trust to qualify for the annual exclusion from gift tax.  In light of the current high gift and estate tax exemption amounts, many taxpayers will no longer need their trust contributions to qualify for the annual exclusion.

Decedent – An individual who has died. Also called the deceased.

Descendants – An individual’s children, grandchildren, and more remote persons who are related by blood or because of legal adoption. An individual’s spouse, stepchildren, parents, grandparents, brothers, or sisters are not included. The term “descendants” and “issue” have the same meaning.

Durable power of attorney – A power of attorney that does not terminate upon the incapacity of the person making the power of attorney (the Principal). If a power of attorney is not specifically made durable, it automatically expires if the Principal becomes incapacitated.

Estate planning – A process by which an person or couple designs a strategy that allows them to continue to prosper while they’re alive, and pass
their property to their loved ones with a minimum of fuss and expense when they die. Tax and liquidity planning are part of this process. The planning may also involve making gifts, buying insurance, planning for long-term care, and creating a Will, living trust, health care directives, durable power of attorney for finances, or other legal documents. 

Estate tax –A tax imposed by the federal government, and by some states, on property transferred at someone’s death. More than a dozen states have state estate taxes that differ from the federal system, so your estate could be subject to a state estate tax even if it is not subject to a federal estate tax. All property, however owned and whether or not it goes through probate court before being given to inheritors, is subject to estate tax. In practice, however, very few estates—fewer than 0.1%—actually owe federal estate tax. That’s because the first $11.4 million of property is exempt from the tax, and you can leave an unlimited amount tax-free to a surviving spouse or charity. An estate tax is to be contrasted with an inheritance tax imposed by certain states on a beneficiary’s receipt of property. 

Executor – The person named in a Will and appointed by a probate court to handle the property of someone who has died. The Executor collects the property, pays debts and taxes, and then distributes what’s left, as specified in the Will. The Executor also handles any probate court proceedings and notifies people and organizations of the death. If a female, may be referred to as the Executrix. Known as a Personal Representative in Florida. 

Fiduciary –A person or company that has the power and obligation to act for another under circumstances which require total trust, good faith, and honesty. Fiduciaries can include trustees, business advisers, attorneys, guardians, executors/personal representatives, real estate agents, bankers, stock brokers, title companies, or anyone who undertakes to assist someone who places complete confidence and trust in that person or company. 

Generation-skipping transfer (GST) tax –A
federal tax imposed on large amounts of money given or left to a grandchild or great-grandchild. Its purpose is to keep families from avoiding the estate tax that would be due if the oldest  generation left property to their children, who then left it to their children (the original giver’s grandchildren). The IRS wants to tax family transfers at every generation. Currently, the exempt amount is $11.4 million, so this tax applies only to people wealthy enough to transfer more than that to their grandchildren. It’s imposed in addition to any estate tax due. Some states impose a state generation-skipping transfer tax.

Gift tax –Federal taxes assessed on any gift, or combination of gifts, from one person to another that exceeds $15,000 in one year. Several kinds of gifts are exempt from this tax: gifts to tax-exempt charities, gifts to your spouse (exceptions apply if the recipient isn’t a U.S. citizen), and gifts paid directly to providers for tuition or medical bills. In addition to the annual gift tax exclusion, there is a $11.4 million cumulative tax exemption for gifts. In other words, you can give away a total of $11.4 million during your lifetime— over and above the gifts you give using the annual exclusion—without paying gift taxes. Under the concept of portability in the tax law, if your spouse predeceased you after 2010 with remaining unused exemption (the deceased spouse unused exemption, or DSUE) and an estate tax return was properly filed, your exemption for gift tax purposes can be augmented by your deceased spouse’s DSUE. Only the State of Connecticut imposes a separate state gift tax.

Grantor – 1) Someone who transfers ownership of real estate through a grant deed. 2) Someone who creates a trust; also called settlor, trustor, or trustmaker.

Grantor trust – A trust over which the grantor retains certain control such that the trust is disregarded for federal (and frequently state) income tax purposes, and the grantor is taxed individually on the trust’s income and pays the income taxes that otherwise would be payable by the trust or its beneficiaries. Such tax payments are not treated as gifts by the grantor to the trust or its beneficiaries.   Provided the grantor does not retain certain powers or benefits, such as a life estate in the trust or the power to revoke the trust, the trust will not be included in the grantor’s estate for federal estate tax purposes. 

Guardian – An individual or bank or trust company appointed by a court to act for a minor or incapacitated person (the “ward”). A guardian of the person is empowered to make personal decisions for the ward. A guardian of the property (also called a “committee”) manages the property of the ward.

Health care power of attorney – A document that appoints an individual (an “agent”) to make health care decisions when the grantor of the power is incapacitated. Also referred to as a “health care proxy.”

Heir –  An individual entitled to a distribution of an asset or property interest under applicable state law in the absence of a will. “Heir” and “beneficiary” are not synonymous, although they may refer to the same individual in a particular case.

Insurance trust – An irrevocable trust created to own life insurance on an individual or couple and designed to exclude the proceeds of the policy from the insured’s gross estate at death.

Intestate – When one dies without a valid will, such that the decedent’s estate is distributed in accordance with a state’s intestacy law.

Irrevocable trust – A trust that cannot be terminated or revoked or otherwise modified or amended by the grantor. As modern trust law continues to evolve, however, it may be possible to effect changes to irrevocable trusts through court actions or a process called decanting, which allows the assets of an existing irrevocable trust to be transferred to a new trust with different provisions.

Joint tenancy – An ownership arrangement in which two or more persons own property, usually with rights of survivorship.

Life estate – The interest in property owned by a life beneficiary (also called life tenant) with the legal right under state law to use the property for his or her lifetime, after which title fully vests in the remainderman (the person named in the deed, trust agreement, or other legal document as being the ultimate owner when the life estate ends).

Living trust – A trust created by an individual during his or her lifetime, typically as a revocable trust. Also referred to as an “inter vivos” trust, “revocable living trust” or “loving trust.”

Non-Resident Alien – An individual who is neither a resident nor a citizen of the United States.  A non-resident alien nonetheless may be subject to federal estate tax or probate with regard to certain assets sitused in the United States.  An estate tax treaty between that individual’s home country and the United States may affect this result.

No-Contest Clause – A provision in a will or trust agreement that provides that someone who sues to receive more from the estate or trust or overturn the governing document will lose any inheritance rights he or she has.  These clauses are not permissible in all instances or in all states.

Operation of Law – The way some assets will pass at your death, based on state law or the titling (ownership) of the asset, rather than under the terms of your will.

Personal representative – An executor or administrator of a decedent’s estate.

Per stirpes – A Latin phrase meaning “per branch” and is a method for distributing property according to the family tree whereby descendants take the share their deceased ancestor would have taken if the ancestor were living. Each branch of the named person’s family is to receive an equal share of the estate. If all children are living, each child would receive a share, but if a child is not living, that child’s share would be divided equally among the deceased child’s children.

Pour over will – A will used in conjunction with a revocable trust to pass title at death to property not transferred to the trust during lifetime.

Power of attorney – Authorization, by a written document, that one individual may act in another’s place as agent or attorney-in-fact with respect to some or all legal and financial matters. The scope of authority granted is specified in the document and may be limited by statute in some states. A power of attorney terminates on the death of the person granting the power (unless “coupled with an interest”) and may terminate on the subsequent disability of the person granting the power (unless the power is “durable” under the instrument or state law).

Principal – The property (such as money, stock, and real estate) contributed to or otherwise acquired by a trust to generate income and to be used for the benefit of trust beneficiaries according to the trust’s terms. Also referred to as trust corpus.

Private trust company –An entity formed by a family to serve as fiduciary for the estates and trusts of extended family members.  Often referred to as a family trust company.

Probate – The court supervised process of proving the validity of a will and distributing property under the terms of the will or in accordance with a state’s intestacy law in the absence of a will.

Property – Anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein.

Prudent man rule – A legal principle requiring a trustee to manage the trust property with the same care that a prudent, honest, intelligent, and diligent person would use to handle the property under the same circumstances. See Prudent Investor Act.

Qualified domestic trust – A marital trust (referred to as a “QDOT”) created for the benefit of a non-U.S. citizen spouse containing special provisions specified by the Internal Revenue Code to qualify for the marital deduction.

Qualified personal residence trust – An irrevocable trust (referred to as a “QPRT”) designed to hold title to an individual’s residence for a term of years subject to the retained right of the individual to reside in the home for the term, with title passing to children or other beneficiaries at the end of the term.

Qualified terminable interest property – Property (referred to as “QTIP”) held in a marital trust or life estate arrangement that qualifies for the marital deduction because the surviving spouse is the sole beneficiary for life and entitled to all income.

Remainder interest – An interest in property owned by the remainderman that does not become possessory until the expiration of an intervening income interest, life estate or term of years.

Residue – The property remaining in a decedent’s estate after payment of the estate’s debts, taxes, and expenses and after all specific gifts of property and sums of money have been distributed as directed by the will.  Also called the residuary estate.

Revocable trust – A trust created during lifetime over which the grantor reserves the right to terminate, revoke, modify, or amend.

Roth IRA – a personal retirement savings plan, funded by an annuity or trust/custodial account, that provides income tax deferral and may provide tax-free distribution of earnings. Eligibility for a Roth IRA is limited to individuals, regardless of age or qualified retirement plan participation, provided they don’t exceed certain adjusted gross income limits.

S corporation – A corporation that has made a Subchapter S election to be taxed as a pass-through entity (much like a partnership). Certain trusts are permitted to be shareholders only if they make the appropriate elections.

Savings Incentive Match Plan for Employees (SIMPLE) – a SIMPLE IRA plan is a simplified, tax-favored retirement plan for small employers that provides for elective contributions by employees and meets certain vesting, participation, and administrative requirements.

Self-dealing – Personally benefiting from a financial transaction carried out on behalf of a trust or other entity, for example, the purchasing of an asset from a trust by the trustee unless specifically authorized by the trust instrument.

Settlor – Term frequently used for one who establishes or settles a trust. Also called a “trustor” or “grantor.”

Simplified Employee Pension (SEP) – an employer’s agreement to contribute to traditional IRAs that are maintained by employees. The plan can be adopted by an employer by completing a fairly simple IRS form. A SEP allows for higher contribution levels that traditional or Roth IRAs, has fewer restrictions than qualified retirement plans and, unlike SIMPLEs, there is no limit on the number of employees in the plan. Employees are immediately 100% vested in their accounts.

Special needs trust – Trust established for the benefit of a disabled individual  that is designed to allow him or her to be eligible for government financial aid by limiting the use of trust assets for purposes other than the beneficiary’s basic care.

Spendthrift provision – A trust provision restricting both voluntary and involuntary transfers of a beneficiary’s interest, frequently in order to protect assets from claims of the beneficiary’s creditors.

Spousal IRA – an individual retirement plan designed to provide retirement benefits for an uncompensated spouse. Although the participant in a Spousal IRA is not required to meet the earned income requirement for contributions to an IRA, the spousal IRA is available only if the participant is married and filing a federal income tax return on a joint basis. A Spousal IRA, if established, must be a separate account and not commingled with the working spouse’s IRA.

Tangible personal property – Property that is capable of being touched and moved, such as personal effects, furniture, jewelry, and automobiles. Tangible personal property is distinguished from intangible personal property that has no physical substance but represents something of value, such as cash, stock certificates, bonds, and insurance policies. Tangible personal property also is  distinguished from real property, such as land and items permanently affixed to land, such as buildings.

Tenancy by the entirety – A joint ownership arrangement between a husband and wife, generally with respect to real property, under which the entire property passes to the survivor at the first death and while both are alive, may not be sold without the approval of both.

Tenancy in common – A co-ownership arrangement under which each owner possesses rights and ownership of an undivided interest in the property, which may be sold or transferred by gift during lifetime or at death.

Testamentary – Relating to a will or other document effective at death.

Testamentary trust – A trust established in a person’s will to come into operation after the will has been probated and the assets have been distributed to it in accordance with the terms of the will.

Testator – A person who signs a will. If a female, may be referred to as the testatrix.

Traditional IRA – a personal retirement savings plan, funded by an annuity or a trust/custodial account, that meets certain requirements (age, earned income) and may permit tax-deductible contributions and tax-deferral of earnings.

Transfer on death designation – A beneficiary designation for a financial account (and in some states, for real estate) that automatically passes title to the assets at death to a named individual or revocable trust without probate. Frequently referred to as a TOD (transfer on death) or POD (payable on death) designation.

Trust – An arrangement whereby property is legally owned and managed by an individual or corporate fiduciary as trustee for the benefit of another, called a beneficiary, who is the equitable owner of the property.

Trust instrument – A document, including amendments thereto, executed by a grantor that contains terms under which the trust property must be managed and distributed.  Also referred to as a trust agreement or declaration of trust.

Trustee – The individual or bank or trust company designated to hold and administer trust property (also generally referred to as a “fiduciary”). The term usually includes original (initial), additional, and successor trustees. A trustee has the duty to act in the best interests of the trust and its beneficiaries and in accordance with the terms of the trust instrument. A trustee must act personally (unless delegation is expressly permitted in the trust instrument), with the exception of certain administrative functions.

Uniform transfers to minors act (UTMA)– A law enacted by some states providing a convenient means to transfer property to a minor. An adult person known as a “custodian” is designated by the donor to receive and manage property for the benefit of a minor. Although the legal age of majority in many states may be 18, the donor may authorize the custodian to hold the property until the beneficiary reaches age 21. Formerly called the Uniform Gifts to Minors Act.

Will – A writing specifying the beneficiaries who are to inherit the testator’s assets and naming a representative to administer the estate and be responsible for distributing the assets to the beneficiaries.

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