Estate Planning Terms
Attorney-in-Fact - An individual designated in a power of attorney to act as the agent of the person who executed the document.
Basic Will - A will
that distributes everything to your spouse, if living, otherwise to your
children when they reach the age of majority.
Beneficiary - A
person who receives funds, property, or other benefits from a will, trust,
contract, or insurance policy.
Bond - A special
insurance policy that insures against the Executor stealing or losing money
from the estate.
Codicil - An amendment
to a will.
Contingent Beneficiary - A beneficiary of estate property who only has the right to receive
estate property upon the occurrence of an event.
Decedent - A person
who has died.
Durable Power of Attorney for Health Care - A written document in which an individual
designates another person to make health care and health-related decisions in
the event that the individual becomes incapacitated.
Durable Power of Attorney for Property (Financial) - A written document in which an individual designates
another person to make his or her financial/property and property-related
decisions in the event that the individual becomes incapacitated and is unable
to do so.
Estate - An
individual's property and assets including real estate, bank accounts, life
insurance policies, stocks, retirement accounts, and personal property such as
automobiles and jewelry.
Estate Tax - A tax
that is imposed at a person's death, or on the transfers of property from their
estate to heirs and beneficiaries. Tennessee imposes taxes on estates over $ 1
million and the federal government imposes taxes on estates over $5 million
(2011-2012).
Executor - A person
named in a will who is authorized to manage the estate of the deceased person.
The executor will collect the property, pay off any debts, and distribute
property and assets according to the terms of the will. (aka "Personal
Representative")
Fee Simple - The entire or whole ownership
of property unburdened by any future interest or any possibility of losing
total ownership. This is the highest form of property ownership. Other forms of
property ownership are life estate, leasehold interest, or tenancy in common,
for example.
Fiduciary - A
person or institution that is legally responsible for the management,
investment, and distribution of funds primarily for the benefit of another
(i.e. the trustee identified in a trust).
Grantor - A person
who transfers assets to another, usually into a trust. Also may be called a
trustor or settlor.
Guardian - An
individual with the legal authority and responsibility to care for another,
usually a minor child.
Heir - A person who
would inherit property under state intestacy law, where a person dies without a
will.
Incapacity - A
person's inability to act on his or her own behalf. A court makes a finding of
incapacity.
Intestate - A term
used when a person dies without a will.
Issue - All
descendents of a particular person. The term includes children, grandchildren,
and other descendents.
Joint Tenancy With Right of Survivorship - A title that is often placed on co-owned property.
At the death of one owner, the other owner will be legally entitled to sole
possession of the property, regardless of what provisions are made in a will. A
husband and wife often use this form of ownership. Otherwise known as Tenancy
by the Entireties with right of survivorship in Tennessee.
Memorandum of Disposition - A separate writing or memorandum which disposes of tangible personal
property upon a person's death. It is not legally binding, however, the executor
is instructed to distribute tangible personal property according to the
memorandum if one is in existence.
Outside of the Will - Some
property passes outside of the specifications in a will. The beneficiary of
such property is determined by your directions (beneficiary designations) when
you opened the financial account (or acquired the property) and not by your
Last Will & Testament. This may include P.O.D. accounts (see below),
certificates of deposit, bank accounts, retirement accounts, annuity contracts,
life insurance, and property held as joint tenants with right of survivorship.
Beneficiary designations should be updated on all such assets to reflect the
wishes of the owner.
Payable on Death (P.O.D.) - Many financial accounts are "P.O.D." accounts. This means that the
account will go to the person you designate as the beneficiary on the account
records with the bank, broker, or insurance agent, and not in accordance with
your will. Also called Transfer on Death or "T.O.D." accounts.
Per Capita - Per capita is another Latin term that means "by
the head". The living members in a class of beneficiaries who are closest in
relationship to the testator (typically children) will receive an equal share.
However, if a member in this class of beneficiaries predeceases the testator,
such member's share will be used to increase the remaining member's shares in
this same class. The deceased member's share will not pass by representation to
their heirs (children). In other words, in a typical family situation the children
of the deceased parent (who would also be the grandchildren of the testator)
would be disinherited.
Per Capita at Each Generation- A newer system of distribution known as per capita
at each generation has been adopted by a few states and the Uniform Probate
Code. This approach views the family horizontally and treats equally those who
are equally distant from the testator. The initial division of shares is made
at the level where one or more descendants are alive. However, the shares of
deceased beneficiaries at that same level are treated as one pot and are
dropped down and divided equally among the representatives on the next
generational level.
Per Stirpes - Per
stirpes is a Latin term that technically means "by the roots or by
representation". This approach views the family vertically. The living members
in a class of beneficiaries who are closest in relationship to the testator
(typically children) will receive an equal share. However, if a member in the
class of beneficiaries who are closest in relationship to the testator
predeceases the testator, such members issue (children; who would also be
grandchildren of the testator) take by representation what their deceased
parent would have taken.
Personal Representative - A person, who, after your death, collects all your
assets, pays all your bills and distributes the balance as you direct in your
will.
Power of Attorney -
A written document that gives one person the legal authority to act on behalf
of another person.
Probate - A process
whereby a court reviews a will to make sure that it is authentic, allows others
to make legal challenges to the will, and ensures that the instructions in the
will are properly carried out by the executor.
Self Proving Affidavit - An attachment to a Last Will & Testament that eliminates the need
for the witnesses to a will to be found and sign a formal document answering
several questions when the will is offered for probate.
Testator - Someone
who makes or has made a Will, or one who dies leaving a Will.
Tennessee Inheritance Taxes -
Taxes that may be imposed by the state where a deceased person's assets are
above the $1 million exclusion.
Trust - A written
document providing that property be held by one (the "trustee") for the benefit
of another (the "beneficiary"). A trust may be created during the grantor's
lifetime or after his or her death.
Trustee - A person
named in a trust document who will manage property owned by the trust, and
distribute the trust income or property according to the terms of the trust document.
A trustee may be an individual or a business.
Will - A document
that directs how property shall be distributed upon a deceased person's death.
* The terms herein are offered to provide some basic
understanding of estate planning legal concepts. However, they are not meant in
any way to constitute legal and/or tax advice.