Estate Planning Glossary

Annual Exclusion - An annual exemption from the federal gift tax for gifts of a present interest of up to $10,000.00 per donee.

Bypass Trust - Also known as a Credit Shelter Trust or Exemption Equivalent Trust. A trust created to reduce federal estate tax liability and benefitting a surviving spouse. It usually holds assets up to, but not exceeding, a decedent's estate tax unified credit.

Charitable Remainder Trust - A trust that holds assets for a stated term or for the life of a designated individual and pays a portion of its assets to individual beneficiaries and the remainder to one or more designated charities. Charitable Remainder Trusts may be set up as either Charitable Remainder Annuity Trusts ("CRATs") or Charitable Remainder Unitrusts ("CRUTs")

CRAT - A type of Charitable Remainder Trust that pays an annuity amount to individual beneficiaries. Usually the annuity benefit is expressed as a percentage of the original trust contribution and is between 5% and 50% of the original trust contribution. At the end of the annuity term, the remaining trust assets are paid to one or more designated charities.

Crummey Powers - Withdrawal rights given to trust beneficiaries that enable them to withdraw contributions to a trust within a stated period of time. Typically, beneficiaries having Crummey withdrawal rights must exercise their withdrawal rights within thirty (30) days of a contribution to the trust. This type of power was first approved by the courts in the decision Crummey v. Commissioner.

CRUT - A type of Charitable Remainder Trust in which a unitrust amount is paid to individual beneficiaries. Usually expressed as a percentage of the trust's assets valued annually, a CRUT pays a unitrust amount between 5% and 50% of its assets. At the end of the unitrust term, the remaining trust assets are paid to one or more designated charities.

Disclaimer - An election by a beneficiary not to accept all, or some part, of a gift or inheritance. A disclaimer may also apply to a power or right granted in a Will or trust. Usually the disclaimer must be made within nine (9) months of receiving the gift or inheritance, and in all cases, before acceptance by the beneficiary.

Donee - A person to whom a gift is made.

Donor - A person who makes a gift to someone else.

Durable Power of Attorney - A document in which a grantor names an agent to transact business and/or health care decisions on the grantor's behalf. A durable power of attorney continues until it is revoked or the grantor dies. It is not affected by the grantor's disability or incapacity.

FLP - A Family Limited Partnership, commonly used to obtain valuation discounts on gifts of limited partnership interests to family members. These types of partnerships often hold real estate and/or marketable securities and cash. Typically, one or more individuals serve as general partners and holds a small ownership interest, while the limited partners own the bulk of the partnership equity.

General Partner - A partner in either a general or limited partnership who has management and voting rights, as well as a portion of the partnership's equity.

GPOA (General Power of Appointment) Trust - A type of trust used to qualify for the estate tax marital deduction. Under this type of trust, the surviving spouse has the right to direct the distribution of trust assets either during lifetime or at death, or both, to any person or entity that the surviving spouse selects.

Grantor - Sometimes referred to as a "Settlor," a Grantor is a person who creates a trust or who otherwise transfers assets to another person or entity.

Grantor Trust - A trust created for the Grantor's benefit during his or her lifetime. This term also describes a trust in which the Grantor has sufficient control so as to make the trust's income taxable to the Grantor, rather than to the trust itself. A Living Trust is a common type of grantor trust.

GRAT - A Grantor Retained Annuity Trust - This is an irrevocable trust established for a fixed number of years for the benefit of the grantor naming others as remainder beneficiaries. This type of trust pays the grantor a fixed annuity amount based on the initial contribution to the trust and is designed to produce gift tax valuation discounts and escape federal estate tax.

GRUT - A Grantor Retained Unitrust - This is an irrevocable trust established for a fixed number of years for the benefit of the grantor naming others as remainder beneficiaries. This type of trust pays the grantor a fixed unitrust amount based on the annual value of the trust's assets and is designed to produce gift tax valuation discounts and escape federal estate tax.

ILIT - An Irrevocable Life Insurance Trust typically designed to hold life insurance on the life of the Grantor and perhaps his or her spouse. Normally, this trust is excluded from the Grantor's taxable estate for death tax purposes.

Income beneficiary - A trust beneficiary entitled to receive all, or some part of, the trust's net income.

Irrevocable Trust - A trust that may not be revoked or amended after its creation. Trusts may be made irrevocable from their inception or they may become irrevocable upon the Grantor's death.

Life Insurance Trust - A trust that owns one or more life insurance policies, usually on the life of the Grantor.

Life Beneficiary - A trust beneficiary entitled to receive assets from the trust during his or her lifetime. At the life beneficiary's death, the trust's assets usually pass to another beneficiary named in the trust document.

Limited Partner - A partner in a limited partnership who has no voting or management control but does possess the right to receive distributions from the partnership and a portion of its assets upon liquidation.

Living Trust- - A trust created and funded with assets during the Grantor's lifetime. It is commonly set up to benefit the Grantor and/or members of his or her family, and often acts as a substitute for a Will.

Living Will - An advanced medical directive in which an individual indicates what type of medical care he or she wants if unconscious and in a terminal condition or in a persistent vegetative state.

Marital Trust - A trust that holds assets for the benefit of the Grantor's spouse. Common types of marital trusts include QTIP Trusts and GPOA Trusts. All marital trusts are designed to qualify for the federal estate tax marital deduction.

NIMCRUT (Net Income with Make-up Charitable Remainder Unitrust) - A type of Charitable Remainder Unitrust in which the unitrust amount is paid out of trust income only. To the extent that income is insufficient, the beneficiary receives less than the full unitrust payment. In subsequent years when income exceeds the unitrust payment, additional distributions are made to beneficiaries to make up for prior years in which they did not receive full payments. At the end of the unitrust term, the remaining trust assets are paid to one or more designated charities.

Pourover Will - A will that names a trust as its primary beneficiary so that assets pass from the decedent's estate to a trust created by the decedent or someone else.

QDOT - A Qualified Domestic Trust designed to qualify for the federal estate tax marital deduction. This type of trust is used when the grantor's spouse is not a U.S. citizen, and for whom outright gifts do not qualify for the federal estate tax marital deduction.

QPRT - A Qualified Personal Residence Trust. This irrevocable trust owns a grantor's personal residence and permits the grantor and/or his or her spouse to use the residence for a stated number of years. Upon expiration of the trust term, the trust assets are distributed to the grantor's beneficiaries, usually children and/or grandchildren. This type of trust is used to obtain gift tax valuation discounts and escape federal estate tax on the transfer of a residence to beneficiaries.

QTIP Trust - A type of marital trust designed to qualify for the federal estate tax marital deduction under which the surviving spouse has the right to receive income and is the only beneficiary to whom principal may be distributed during the surviving spouse's lifetime. At the death of the surviving spouse, assets in a QTIP trust pass to beneficiaries designated by the Grantor.

Remainder Beneficiary - A trust beneficiary who receives trust assets only after expiration of a stated period of time. In a trust created to benefit A during her life and then B, B is the remainder beneficiary.

Revocable Trust - A trust in which the Grantor reserves the right to revoke or amend the trust in whole or in part.

Special Needs Trust - A type of trust created for the benefit of a disabled beneficiary who is receiving government benefits based on financial need. The trust is designed to provide benefits to the beneficiary without disqualifying his or her entitlement to various government programs such as Social Security Disability, Medicaid and Supplemental Security Income.

Sprinkle Trust - A trust that permits the trustee to make distributions to a number of different beneficiaries, commonly children and/or grandchildren, without necessarily equalizing distributions among beneficiaries.

Totten Trust - A special type of bank account that passes to a designated person after a depositor's death. This type of trust is revocable at will until the depositor dies.

Trust - A legal entity created by an individual for the benefit of designated beneficiaries and managed by a trustee.

Unified Credit - A credit against federal estate and gift taxes given to each taxpayer. Currently, the unified credit can shelter up to $675,000.00 of assets from estate or gift tax. The unified credit will increase steadily between now and the year 2006 when it will shelter up to $1,000,000.00 of assets from estate and gift taxes.

UTMA Account - A special type of custodial bank account created under the Uniform Transfers to Minors Act used to hold assets for beneficiaries under the age of 21.