Estate Planning Terms

It has been a while since a posted on the blog.  The state of the economy has meant that I have been doing far more bankruptcy work than planned when I started this blog.  To get away from the bankruptcy work a bit, I am including today a set of definitions for estate planning terms.  

After putting together our Estate Planning Kit,  (download the Kit at:  ).  I realized the need for a glossary like this to help folks wade through the materials and the process.  I you think we need to add other terms, please let me know.  This should be a dynamic process.

Dan Carroll

November 22, 2009

Estate Planning


 Adjusted Gross Estate.  The amount remaining from the gross estate after administrative expenses, debts, losses and claims against the estate have been deducted.

 Adjusted Gross Income.  The amount remaining from gross income after certain deductions, including business expenses and losses from the sale of property.

Annual Gift Tax Exclusion.  An exclusion that permits an individual to make gifts each year of up to $12,000 to each of as many individuals as he or she chooses, without being deemed to make any gifts for federal gift tax purposes; husbands and wives may give $24,000 as a couple to an individual – regardless of who actually owns the asset that is given.

Annuity.  A right that has been purchased to receive a series of periodic payments for life.

Appreciated Property.  In general, any asset that has increased in value and which, if sold at its fair market value, would produce a capital gain.

 Bargain Sale.  A sale of property to a charitable organization for an amount less than the property’s fair market value.

Basis.  In general, the amount against which profit or loss is measured on the sale of an item of property.  Usually, the original cost to an individual of a certain property.  Sometimes called “cost basis”.

Beneficiary.  The individual or organization that is the recipient of a gift — either cash, property or income.  Also, one designated as recipient of the proceeds of a life insurance policy.

Bequest.  A gift of cash or other personal property made by will.

Capital Asset.  In general, any item of property, but excluding inventory items and also excluding any work of art in the hands of the artist who created it.

Capital Gain.  The profit realized by the seller from the sale or exchange of a capital asset.

Carryover.  The portion of a charitable contribution or a business lose that is not deductible for income tax purposes in the current year and may be “carried over” and deducted in the following year for up to 5 years.

Charitable Contribution.  An irrevocable gift of money or other property made to a qualified charity, either during life or by will.  To be distinguished from a charitable deduction.

Charitable Deduction.  The deduction allowed, either for income, gift or estate tax purposes, for a charitable contribution.

 Charitable Lead Trust.  A trust that makes income payments to a charitable organization for a specified period and then distributes its assets wither back to the donor or on to the donor’s heirs.  Lead trusts can be annuity trusts with a fixed annual amount payment, or unitrusts with a  fixed annual percentage payment to the charity.

 Charitable Remainder Annuity Trust.  A charitable remainder trust that pays a fixed, guaranteed amount (at least 5% of the initial value of trust assets) each year to one or more individuals for a specified period and then distributes its assets (the “remainder”) to a charitable organization.

 Charitable Remainder Unitrust.  A charitable remainder trust that pays a variable amount of the annual value of the trust assets as determined every year (at least 5% of the initial value) to one or more individuals for a specified period and then distributes its assets (the “remainder”) to a charitable organization.

 Closely Held Stock.  Corporate stock owned by a small number of persons and not actively traded.

 Codicil.  A supplement or addition to an existing will.  It revises, changes, or modifies the existing will.  A codicil must meet the same requirements of execution and validity that a will must meet.

 Community Property.  Property owned equally by husbands and wives under the laws of community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington).

 Contingent Gift or Bequest.  A gift or bequest to an organization that is contingent upon the occurrence of some event (e.g., a gift of real property to a hospital that is contingent upon the hospital’s building a clinic on the property).

 Deduction.  An amount of money that offsets the amount that is subject to a tax.

 Deferred Gift.  A gift arrangement that provides an immediate income tax benefit to the donor while providing a future benefit to a charitable organization.  Examples of a deferred gift include charitable remainder trusts and pooled income funds.

 Depreciation.  For tax purposes, the amount that can be written off with respect to the normal wear and tear of an asset such as a building or a machine.

 Devise.  The act of transmitting or giving real property by will. The property or lands so transmitted or given. A will or clause in a will transmitting or giving real property.

 Estate/GSTT Tax Credit.  Also called the Exclusionary Amount. It directly offsets a limited amount of gift/estate tax possibly owed on gifts not made to a spouse or charity.  For 2009, it allows a person to transfer $3,5,000,000 in assets to anyone without owing any federal estate taxes.   However, state estate taxes may still be due, and in Maryland the exclusionary amount for state estate tax purposes in still $1,000,000.

 Fair Market Value.  In general, what a willing buyer would pay to a willing seller, each having knowledge of all facts relevant to the value of the item in question.

 Federal Estate Tax.  The tax imposed by the federal government on the transfer of assets at death.

 Federal Gift Tax.  The tax imposed by the federal government on the transfer of assets by gift during life. 

 Federal Gift Tax Exemption.   The first $1 million of taxable gifts may be entitled to a federal exemption  if certain requirements are met.  At one time the Federal tax exemption was equal to the federal estate tax exemption and they worked together to set a limit on transfers to heirs without incurring federal tax.  They still work together but not as smoothly.

 Gift Annuity.  An annuity issued by a charitable organization in exchange for cash, securities or, in some states, other kinds of assets.

 Gross Estate.  In general, the fair market value of the deceased’s interest in all property, real or personal, tangible or intangible, wherever situated, which must be included in his or her estate for federal and possibly state  estate tax purposes.

 Interest.  A right of ownership in property.  Consider property, any kind of property, as consisting of a bundle of sticks.  Each stick represents a single interest in that property.  One stick might be the right to use the property, another  the right to sell it, yet another the right to give it away.

 Undivided Interest.  A fraction or percentage of all the owner’s rights in a property.  In other words, a whole stick (see above).

 Remainder Interest.  The right to receive property upon termination of a prior interest in it.

 Future Interest.  The postponed right to use or enjoy property (e.g., a remainder interest).

 Income Interest.  The right to all or part of the income produced by a property.

 Intestacy.  Dying without a valid will.

 Life Income Gift.  A term frequently used by development officers to describe a gift arrangement that provid es a life income interest to the donor or some other person.  Examples include gift annuities, charitable remainder trusts and pooled income funds.

 Long-Term Capital Gain.  Gain on the sale of a capital asset that has been held for more than 12 months.

 Short-Term Capital Gain.  Gain from the sale of a capital asset that has been held for 12 months or less.

 Marital Deduction.  The deduction allowed under the federal gift tax for a gift to one’s spouse or under the federal estate tax for a bequest to one’s spouse.

 Ordinary Income.  Income that is fully taxed, such as wages and ordinary interest.

 Ordinary Income Property.  Property that when sold would produce any (a) ordinary income, or (b) short-term capital gain.  A charitable contribution of ordinary income property is reduced by the amount of such income or gain.

 Personal Property.  Property excluding real estate and money but including such items as stocks, bonds, boats, coin collections, automobiles, and the like.  Also called tangible personal property.

 Pledge.  A promise to make a gift to a charitable organization.  Not deductible until paid.

 Pooled Income Fund.  A trust, maintained by a charitable organization, to which various donor transfer assets, contributing irrevocable remainder interests to the organization and retaining or otherwise creating life income interests in the trust.

 Probate.  Technically, the procedure for determining the validity of a will.  Often used, however, to mean the whole process of settling a decedent’s estate.

 Qualified Charitable Remainder Trust.  A charitable remainder trust that meets all the requirements of an annuity trust or all the requirements of a unitrust.

 Real Property.  A term used for real estate or land.

 Remainder Beneficiary.  An individual or an organization that has a remainder interest in a trust or in an item of property; an interest that follows either the interest of someone (or something) else or a term of years.

 Taxable Estate.  The gross estate, reduced by all allowable deductions, and increased by any adjusted taxable gifts.

 Taxable Gift.  That portion of a gift to an individual that remains after taking into account the $12,000 exclusion, gift splitting (if any) and all allowable gift tax deductions.

 Testator.  An individual who is making his or her will or who has a will.

 Transfer Taxes.  Technically, any tax imposed on the transfer of property of any kind.  In the estate planning field, the collective terms for the Federal and State Gift Tax(es), the Federal Estate Tax, State Estate Tax,  and Generation Skipping Transfer Tax.  Estate planning involves using the various deduction and exemptions available to the transfer taxes to minimize the total tax liability.

 Trust.  An arrangement in which one person transfers legal title to property to another person (the trustee) for the benefit of one or more beneficiaries who may have income or remainder interests in the trust.

 Will.  An instrument that is effective to transfer property at death.  Subject to a number of technical requirements.

 Zero Bracket Amount.  For Federal income taxes, the amount over which the sum of a person’s itemized deductions are deductible (abbreviated ZBA).


2 Responses to “Estate Planning Terms”

  1. Johnny Jovel Says:

    Hey, nice blog with good info. I really like coming back here often. There?s only one thing that annoys me and that is the misfunctioning of comment posting. I usually get to 500 error page, and have to do the post twice. – Age is an issue of mind over matter. If you don’t mind, it doesn’t matter. – Mark Twain 1835 – 1910

    • carrferg Says:

      I will see what I can do. I am by no means a geek so I don’t make any promises. Thank you for your comments. I need make some time to make some more posts to the blog, I have otehr topics outlined and just have not had a chance to put them together and post.

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