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Estate Planning Terms & Definitions |
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Breach of Fiduciary Duty
The personal representative of an estate or the trustee of a trust owes the beneficiaries of the estate or trust certain fiduciary duties of honesty, prudence and loyalty. When those duties are violated by a trustee or personal representative, a cause of action arises.
Build Up Equity Retirement Trust (BERT)
The BERT is a tax sheltered irrevocable trust that is set up by each spouse for the benefit of the other spouse. Gifts are made to the trust annually and, while still accessible, the assets are exempt from gift tax and estate tax. Also, because the trust is irrevocable the assets are protected from creditors and predators. Then upon the spouses death the assets are passed on to intended beneficiaries.
Durable Power of Attorney
A durable power of attorney allows someone else to handle financial matters for assets in your individual name, particularly retirement plans. It is also used to put assets in your trust if you become mentally disabled prior to your trust becoming fully funded.
Elective Share
Some states provide an elective share to surviving spouses, which provides the surviving spouse with a portion of the deceased spouse’s estate according to a statutory formula. Deadlines may be associated to make the elective share.
Estate Litigation
Estate Litigation concerns actions brought in court against a deceased person's estate. Types of actions include claims and lawsuits.
Funding
Most assets will need to be re-titled into the trust to make the trust effective for disability planning and to avoid probate. Funding a trust is just as important as creating the trust.
Grantor Retained Annuity Trust (GRAT)
A GRAT is an irrevocable trust in which the grantor transfers assets into the trust and retains the right to annual payments of a fixed amount of principal and interest for a prescribed number of years at the end of the period the assets go to the beneficiaries in accordance with the grantors intentions.
Health Care Surrogate / Health Care Power of Attorney
This instrument designates a health care surrogate or health care power of attorney if you are incapable of making health care decisions or providing informed consent. It must also account for HIPAA (Health Insurance Portability and Accountability Act) of 1996 to be effective.
Inheriting Trust
An Inheriting Trust is a special type of dynasty trust that is designed by the inheritor to receive an inheritance. The trust offers greater asset protection and estate tax planning while still giving the inheritor all the rights, benefits and control over the trust property that the individual would have through outright ownership.
IRA Inheritance Trust (IRAIT)
Eventually we are all going to pass on to our greater glory. It is how we are remembered by those who loved us and knew us that keep us alive forever. With the IRA Inheritance Trust a check will be coming to your beneficiaries with your name on it for their benefit every quarter. This will be part of your legacy.
Irrevocable Life Insurance Trust (ILIT)
The irrevocable life insurance trust or ILIT is a special type of trust, that holds and is the beneficiary of, a special type of insurance. This insurance inside this trust is guaranteed level premium, guaranteed benefit and can be placed on the life of one spouse or both spouses. The payout from the policy is not estate taxable and is specifically earmarked to pay the estate taxes.
Limited Liability Companies (LLC)
An LLC is a business entity formed under the laws of specific states and is commonly used for estate compression for tax purposes and asset protection. Shareholders or “Members” of the LLC cannot be personally liable for the debts of the LLC. Also, the assets that are owned by the LLC can be “compressed” and used for wealth transfer.
Lack of Capacity
Under the law, a testator is required to have mental competency to make a last will and testament or trust and to understand the nature of his or her estate assets and the people to whom the estate assets are going to be distributed. A will or trust can be declared void if lack of capacity can be proven. Usually, incompetence is established through a prior medical diagnosis of dementia, senility, Alzheimer’s or psychosis.
Lack of Formalities
Proper execution of a last will and testament or trust requires that the will or trust be signed by the testator and witnessed and signed by two unrelated parties. A last will and testament can be contested on the basis that it was not properly drafted, signed, or witnessed in accordance with the law.
Living Will
This instrument directs your physician as to whether or not to cease life-sustaining procedures which would serve only to prolong your death if you are terminally ill. It gives guidelines for your physician to follow, as well as clarifies your intent as to life-sustaining procedures.
Personal Representative (“PR”)
The person responsible for settling an estate.
Pour Over Will
Upon your death, your pour-over will leaves any property to your living trust that you did not put into it before your death. It functions as a safety net to make sure property you neglected to place in your trust can ultimately be managed by your Trustees pursuant to your instructions.
Probate
The official proving of a will.
Qualified Personal Residence Trust (QPRT)
The QPRT allows you to move your primary or secondary residence out of your taxable estate while still allowing you to retain complete possession and use of the residence. After your passing the home is then transferred to your intended beneficiaries. This technique, while effective at reducing your taxable estate, can become complicated if you wish to sell the property in the trust.
Quickclaim Bill of Sale
This instrument places your personal property (e.g. furniture and jewelry) into your trust, thus avoiding the need to probate your personal property.
Revocable Living Trust
This instrument contains in-depth instructions for your care if you become mentally disabled, and the care of your loved ones upon your death. Furthermore, it efficiently transfers your property to your loved ones at the time of your death, avoiding probate and allowing for the maximum utilization of estate tax exemptions.
Successor Trustee (“Trustee”)
The person responsible for settling a trust.
Undue Influence
When the testator is compelled or coerced to execute a will or trust as a result of improper pressure exerted on him or her, by a relative, friend, trusted advisor, or health care worker, a cause of action arises. In many cases, the undue influencer will upset a long established estate plan where the bulk of the estate was to pass to the descendants or close relatives of the decedent. In other cases, one child of the decedent will coerce the decedent to write the other children out of the will or trust.
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