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Estate Planning Definitions

Key Terms to Know

Annual Gift Tax Exclusion:

Technique to allow gifts without the imposition of estate or gift taxes and without using lifetime exclusion.

Children’s or Grandchildren’s Irrevocable Education Trust:

A Trust used by parents and grandparents for a child’s or grandchild’s education.

Charitable Remainder Interest Trust:

A trust whereby donors transfer property to a charitable Trust and retain an income stream from the property transferred. The donor receives a charitable contribution income tax deduction, and avoids a capital gains tax on transferred property.

Family Limited Partnership:

An entity used to:

  1. Provide asset protection for partnership property from the creditors of a partner

  2. Provide protection for limited partners from creditors

  3. Enable gifts to children and parents maintaining management control

  4. Reduce transfer tax value of property


Federal Estate Tax:

A tax levied by the federal government upon the estate of a deceased person. The federal government gives certain exclusions and deductions and then taxes everything above a set level.

Fractional Interest Gift:

Allows a donor to transfer partial interests in real property to donees and obtain fractional interest discounts for estate and gift tax purposes.


Is the process that entails transferring assets you own as an individual into the name of your Trust.

Generation Skipping Tax:

This is a tax levied on assets that are given to individuals who are more than one generation away from the donor. An example would be a grandparent giving an asset to a grandchild either during the grandparent’s life or at death. Effective use of generation-skipping exemption allows the assets to avoid estate tax inclusion in the child’s taxable estate.


Is a court-supervised proceeding which names an individual or entity to manage the affairs of an incapacitated person. A guardianship may also include the duty to care for the incapacitated person.

Health Care Power of Attorney:

Instrument used to allow a person you name to make health care decisions for you should you become incapacitated.

Irrevocable Life Insurance Trust:

A Trust used to prevent estate taxes on insurance proceeds received at the death of an insured.

Joint Tenancy:

When property is held in joint tenancy with rights of survivorship by two or more people, upon the death of one of the owners, all of his or her interest in the property is transferred immediately to the surviving owners.

Living Will:

Sometimes called a physician’s directive, is a document in which you give directions for life sustaining treatment should you become unable to communicate your wishes. Some states have combined this into the advanced health care directive.

Pour Over Will:

Is used first to name a guardian for minor children. Second, it protects against intestacy in the event any assets have not been transferred into the Trust at the death of the Trustor/Owner. Its function is to “pour” any assets left out of the Trust into it so they are ultimately distributed according to the terms of the Trust.


Private Foundation:

An entity used by higher-wealth families to receive charitable income, gift, or estate tax deduction while allowing the family to retain some control over the assets in the foundation.


Is the court procedure used to change title to assets from the name of an individual who has passed away into the name of the beneficiaries. It is also where all creditors of a decedent file claims to collect their debts and where interested parties can “contest” the Will. An individual who passes away with a Will or no estate plan will go through this process.

Property Power of Attorney:

Instrument used to allow an agent you name to manage your property.

Revocable Living Trust:

A device used to avoid probate and provide management of your property, both during life and after death.

State Estate or Inheritance Tax

A state estate tax is a tax levied by a state government upon the estate of a deceased person. It is levied in much the same way as the federal estate tax. A state inheritance tax is a tax levied by a state government that varies depending upon the relationship of the inheritor to the deceased person. Nearly half the states have a separate state estate or inheritance tax which kicks in at a lower level than that of the federal government.

Step-up in Basis:

A step-up — or step-down — in basis is an adjustment for income tax purposes to an asset’s fair market value at the date of the death of the owner of the asset. For example, if you bought a share of stock for $100 that increased in value to $500 at the time of your death, your tax basis was $100 but increases to $500 at the time of death.


The person or entity in charge of the assets in a Trust. While you are alive, you may act as Trustee. For married couples, either one or both spouses may act as Trustee or co-Trustees. The successor Trustee is an individual or corporation fiduciary whom you designate to be in charge of your Trust in the event of disability or upon death.


A legally enforceable declaration of how a person wishes his or her property to be distributed after death. In a Will, a person can also recommend a guardian for his or her children.

Estate Planning Check Up

Is your family protected? 

  • Do you have a Will?

  • If you have minor children, do you have a current Will which names Guardians?

  • If the total gross value of all your assets is over $100,000 do you have an Estate Plan?

  • If you have a Living Trust, have you transferred your assets into it?

  • In case you become disabled, have you nominated someone to handle your financial affairs?

  • Do you have a current Health Care Power of Attorney that provides the names, addresses and telephone numbers of your designated agents to handle your medical care if you’re disabled?

  • Do you have provisions in your Trust or Will that address the issue of death taxes?

  • If you want to make gifts to charities at your death, are they clearly set forth in your planning documents?

  • Do your planning documents clearly set forth how your personal property will be distributed at your death, including the care of any surviving pets?

  • Since you signed your planning documents, have you changed your mind about any aspect of the plan?

  • Has the value of your assets substantially changed since you signed your planning documents?

  • Have you substantially changed the kind of assets you own since your planning documents were signed?

  • Have you recently been married, divorced or widowed since your estate planning documents were signed?

  • Have you had children since your estate planning documents were signed?

  • Have your children had children?

  • Have any of your children been married, divorced or died since your planning documents were signed?

  • Have you, your spouse or child become physically or mentally incapacitated since your planning documents were signed?

  • Have you bought or sold a house or other piece of property since your planning documents were signed?

  • Are you contemplating selling stock or other valuable assets with a low cost basis?

  • Have you moved between states since your planning documents were signed?

  • If you have a Living Trust, are Medicaid triggers in place to ensure that at the appropriate time Medicaid planning can be implemented?


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