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CFP - Steps in the Financial Planning Process > Estate Planning Definitions > Flashcards

Estate Planning Definitions Flashcards

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1
Q

529 plan “front load” contributions

A

Contributions to 529 plans that equal five years of annual exclusion contributions can be made at one time. In 2022

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2
Q

5-and-5 power

A

A power of appointment that gives the holder the right to withdraw the greater of $5

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3
Q

A-B trust planning

A

Combining a bypass trust (“B” trust) with a marital trust (“A” trust) to take advantage of a married couple’s available federal estate tax exemption and the unlimited marital deduction.

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4
Q

abatement

A

A state statute that determines an alternative distribution of assets when a decedent makes bequests of a greater amount of assets than currently exist under his will.

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5
Q

accumulation trust

A

A trust that allows the trustee to accumulate required minimum distributions within the trust.

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6
Q

ademption

A

A state statute that determines which assets can be used to satisfy a bequest when the bequeathed asset is no longer in existence.

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7
Q

adjusted gross estate

A

The amount of a gross estate calculated after subtracting debts

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8
Q

adjusted taxable gift

A

A taxable gift made after 1976 that is added to a decedent’s taxable estate to determine the tentative tax base before the estate tax is applied.

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9
Q

advance directive

A

A legal document that enables an individual to direct his wishes regarding life-sustaining medical treatment in the event he becomes so ill that he cannot at the time communicate his wishes.

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10
Q

agent

A

A person chosen by a principal to act for the principal in a fiduciary capacity under a power of attorney or a health care proxy.

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11
Q

alternate valuation date

A

The value of property in a decedent’s estate six months after death. The alternate valuation date can be used only when the value of estate or generation-skipping transfer (GST) tax will be reduced by electing the alternate valuation date.

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12
Q

ancillary probate

A

A separate probate proceeding where property located outside of a decedent’s state of domicile is subject to a separate probate proceeding in the state where the property is located.

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13
Q

annual exclusion

A

The amount that can be given to an individual donee each year gift tax free. The amount in 2022 is $16

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14
Q

annuitant

A

The person receiving payments under an annuity.

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15
Q

annuity payment

A

A level payment amount distributed at set intervals

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16
Q

applicable credit

A

A credit applied to offset the estate tax due on an estate. The credit has been “unified” for gift and estate tax purposes

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17
Q

applicable exclusion amount

A

The amount of property that can be sheltered from gift or estate tax because the unified credit is applied against the tax. This amount is $12

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18
Q

applicable fraction

A

The amount of the GST exemption allocated to the transfer that is divided by the taxable amount of the gift.

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19
Q

applicable rate

A

The GST tax rate in effect at the time of a gift is multiplied by the inclusion ratio to arrive at the applicable rate.

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20
Q

appointee

A

A person who is appointed property by the holder of a power of appointment.

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21
Q

ascertainable standard

A

A provision that permits a trustee to distribute trust income or principal to trust beneficiaries for a specified reason.

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22
Q

attorney-in-fact

A

The agent named in a power of attorney.

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23
Q

bargain sale

A

A sale of property to family members

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24
Q

basic exclusion amount

A

The applicable exclusion amount or exemption equivalent amount.

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25
Q

basis

A

The value of property used to determine gain or loss for income tax purposes when the property is sold or for gift tax purposes when the property is transferred.

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26
Q

beneficiary

A

A person who receives a beneficial interest in a trust or property bequeathed from a decedent’s estate.

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27
Q

beneficiary designation

A

A legal contract that names the person

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28
Q

bequest

A

The distribution of property under a will.

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29
Q

business continuation agreement

A

An arrangement for the orderly disposition and continuation of a business interest in the event of the owner’s death

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30
Q

business succession planning

A

A plan for the orderly transition of a closely held business.

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31
Q

buy-sell agreement

A

A business continuation agreement that provides for the orderly disposition and continuation of a business interest in the event of the owner’s death

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32
Q

bypass trust

A

A trust that utilizes a decedent’s unified credit and avoids estate taxation of trust assets at the surviving spouse’s death.

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33
Q

charitable deduction

A

An unlimited tax deduction that applies to gifts or bequests made to qualified charities.

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34
Q

charitable gift annuity

A

An arrangement between a donor and a charity in which the donor pays the charity a certain amount and the charity in turn pays the donor (or other designated annuitant) an annuity stream of income for life.

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35
Q

charitable lead annuity trust

A

A split-interest trust whereby a fixed annuity stream of income is distributed to a charity and the remainder of the trust interest passes to an individual when the income term ends.

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36
Q

charitable lead unitrust

A

A split-interest trust whereby a fixed percentage of income

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37
Q

charitable remainder

A

A charitable gift that will take place at some time in the future.

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38
Q

charitable remainder annuity trust

A

A split-interest trust whereby a fixed annuity stream of income is distributed to an individual and the remainder of the trust interest passes to a charity when the income term ends.

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39
Q

charitable remainder unitrust

A

A split-interest trust whereby a fixed percentage of income

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40
Q

civil union

A

A registered union recognized in some states that grants unmarried couples the same inheritance rights and protections under state law that legally married spouses have.

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41
Q

codicil

A

A legal document that addresses minor changes in a will.

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42
Q

commercial annuity

A

An annuity contract with an insurance company.

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43
Q

commingled assets

A

Assets that are mixed together

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44
Q

committee

A

The guardian of a ward’s property charged with the responsibility of investing and managing the ward’s estate.

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45
Q

common-law state

A

A state that recognizes common law (in contrast to a state that recognizes community law).

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46
Q

guardian

A

The guardian of a ward’s property charged with the responsibility of investing and managing the ward’s estate. Also known as a conservator or a curator.

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47
Q

common-law marriage

A

A union recognized by some states for couples who live together for a period of time but do not legally marry. Common-law marriage confers unlimited marital deductions for property transfers and treats jointly held real property as community property.

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48
Q

community asset

A

An asset deemed to be owned one-half by each spouse.

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49
Q

community property

A

Property deemed to be owned one-half by each spouse. In community property states

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50
Q

completed transfer

A

An irrevocable transfer of property.

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51
Q

complex trust

A

A trust that can accumulate income

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52
Q

conduit theory

A

A theory pertaining to trust taxation that provides that what enters the trust or estate as ordinary income remains ordinary income when received by beneficiaries or heirs.

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53
Q

conduit trust

A

A trust that requires any minimum distributions received by the trust to be paid to trust beneficiaries.

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54
Q

conservator

A

A person chosen by the court to manage a ward’s property and financial affairs. A conservator is a fiduciary.

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55
Q

contingent remainder interest

A

An interest in a trust’s remainder that is contingent on the occurrence of a certain event or circumstance.

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56
Q

Contribution Rule

A

When an asset is titled joint with rights of survivorship between non-spouses

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57
Q

corporate fiduciary

A

A corporation named to serve as a fiduciary

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58
Q

corporate trustee

A

A corporation

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59
Q

co-trustees

A

Two or more trustees serving together.

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60
Q

credit for state death tax

A

A credit that the federal government allowed to the states for death tax collected. The credit for state death tax was phased out from 2001 to 2004.

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61
Q

credit shelter trust

A

A trust that utilizes a decedent’s unified credit to shelter assets from future estate tax. Assets that pass to a credit shelter trust avoid future estate tax

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62
Q

cross-purchase agreement

A

A contract made by individual shareholders to own life insurance on a fellow shareholder’s life and to purchase stock upon his death or disability.

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63
Q

Crummey notice

A

A notice provided by a trustee to trust beneficiaries informing them of their right to withdraw funds transferred to the trust within a certain period of time.

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64
Q

Crummey powers

A

A trust beneficiary’s right to withdraw property that is added to a trust within a certain time frame. This gives the beneficiary a present interest in the trust

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65
Q

Crummey lapses

A

The termination of a Crummey beneficiary’s right to withdraw assets because of the passing of the defined period in which the Crummey right of withdrawal is exercisable. The Crummey beneficiary makes a gift to the other trust beneficiaries.

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66
Q

cumulative

A

Increasing by successive additions. Gift and estate taxes are cumulative in nature. Taxable gifts made since 1932 must be added to current taxable gifts before the gift tax is applied. Adjusted taxable gifts made by a decedent since 1976 are added to the taxable estate to determine the tentative tax base before the estate tax is applied.

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67
Q

curator

A

The guardian of a ward’s property charged with the responsibility of investing and managing the ward’s estate. Also known as a conservator.

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68
Q

curtesy

A

A widower’s right to a life estate in a deceased spouse’s property.

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69
Q

de minimis rule

A

A doctrine of tax law that ignores small amounts.

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70
Q

deceased spousal unused exclusion amount (DSUEA)

A

Under portability

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71
Q

decoupled

A

Separated—many states have decoupled from the federal estate tax since the phase-out of the credit for state death tax.

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72
Q

designated beneficiary

A

An individual named as a beneficiary either by the terms of a retirement plan or by the employee’s beneficiary designation.

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73
Q

direct gift

A

A gift of real or personal property made outright to others.

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74
Q

direct gift to charity

A

A gift made directly to a charity accomplished by giving assets outright to a charitable institution.

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75
Q

direct skip

A

A taxable generation-skipping transfer made to a skip person outside of a trust.

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76
Q

disclaimant

A

A beneficiary who refuses to accept a gift or a bequest

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77
Q

disclaimer trust

A

A trust that holds property disclaimed by a decedent’s heir.

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78
Q

discretionary provision

A

A provision that gives a trustee the discretion to make distributions to trust beneficiaries for certain criteria.

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79
Q

distributable net income (DNI)

A

A concept pertaining to the income taxation of trusts that provides that to the extent that a trust has income and distributes assets to beneficiaries

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80
Q

do-not-resuscitate declaration (DNR)

A

A document that authorizes health care providers to withhold CPR or other measures to restart a patient’s heart or breathing.

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81
Q

domestic partners

A

An unmarried couple involved in a committed relationship regardless of gender.

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82
Q

domestic partnership agreement

A

A legal agreement that protects both partners in a relationship by establishing ground rules for living together.

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83
Q

domicile

A

An individual’s legal residence.

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84
Q

donee

A

A person or entity that is the recipient of a gift.

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85
Q

donor

A

A person who transfers his own property to another person or entity.

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86
Q

donor-advised fund

A

A type of public charity such as a community foundation or funds that are overseen by mutual fund companies or brokerage firms. Donors can make contributions to a donor-advised fund and offer suggestions for the specific charity to receive funds from its account.

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87
Q

dower

A

A widow’s right to a life estate in a deceased spouse’s property.

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88
Q

durable power of attorney

A

A broad power of attorney that is not terminated by the subsequent disability or incapacity of the principal.

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89
Q

dynasty trust

A

A trust created by a state that can last for many generations because it is not subject to the rule against perpetuities. Also known as a perpetual trust.

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90
Q

elective share

A

A statute that permits a surviving spouse to elect to receive an amount prescribed by state law.

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91
Q

eligible designated beneficiary

A

A beneficiary of a retirement plan that is either the decedent’s surviving spouse

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92
Q

estate

A

The rights

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93
Q

estate equalization

A

A technique used to equalize ownership of assets between spouses to allow each spouse to take advantage of his available estate tax exemption.

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94
Q

estate freeze

A

A technique that allows the owner of property or a business interest to retain much of the present value of the asset or control of the asset while shifting future appreciation of that asset to others.

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95
Q

estate liquidity

A

Liquid assets held by an estate that are sufficient to pay postmortem costs

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96
Q

estate trust

A

A trust that provides for a marital deduction in the decedent spouse’s estate. The surviving spouse is typically given a life interest with the remaining trust assets paid to the survivor’s estate at his death.

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97
Q

executor

A

The person (and/or institution) named in a valid will to serve as the personal representative of a testator when his will is being probated.

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98
Q

exemption equivalent

A

The amount of a gift or bequest that escapes taxation. For 2022

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99
Q

fair market value (FMV)

A

A price that a willing seller would pay a willing buyer for property.

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100
Q

family allowance

A

A statutory provision that provides a surviving spouse with money from the decedent’s estate to pay for living expenses.

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101
Q

family limited partnership (FLP)

A

A limited liability entity created under state law typically used when parents want to transfer wealth to their children in a tax-efficient manner

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102
Q

family trust

A

A trust that utilizes a decedent’s unified credit and avoids estate taxation of trust assets at the surviving spouse’s death. This trust is also known as a bypass trust

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103
Q

fee simple or fee simple absolute

A

Outright ownership of an asset in an individual’s name. This is the most comprehensive form of ownership

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104
Q

fiduciary

A

A person who has the authority to perform certain acts or specific duties. A fiduciary has a high level of responsibility to perform duties with utmost care and loyalty.

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105
Q

forgone interest

A

The difference between what should have been charged as interest on a loan and what was actually charged as interest on a loan.

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106
Q

fractional share

A

A partial ownership interest in property.

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107
Q

funded ILIT

A

An ILIT that holds both a life insurance policy and income-producing property to generate income to pay annual policy premiums.

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108
Q

future-interest gift

A

A gift made to someone who cannot take immediate possession of a property or who must wait to receive beneficial use

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109
Q

general bequest

A

A provision in a will that disposes of a certain amount or value of property.

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110
Q

general partnership interest

A

A partnership interest that retains control and management of FLP assets.

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111
Q

general power of appointment

A

A power of appointment allowing the holder to use a property without restriction and to appoint property to himself

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112
Q

generation-skipping transfer (GST)

A

A gift or bequest made to a person two or more generations younger than the transferor.

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113
Q

generation-skipping transfer tax (GSTT or GST tax)

A

A transfer tax imposed in addition to a gift tax or an estate tax.

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114
Q

generation-skipping transfer (GST) tax annual exclusion

A

GST annual exclusions are allowed for present-interest gifts to a skip person

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115
Q

generation-skipping transfer (GST) tax exemption

A

The amount that a transferor can transfer to grandchildren or more remote descendants during life or at death before a GST tax is imposed. In 2022

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116
Q

gift

A

A voluntary transfer without full or adequate consideration.

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117
Q

gift causa mortis

A

A revocable gift made in anticipation of the donor’s death that becomes a completed

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118
Q

gift tax

A

A transfer tax imposed when a donor gifts property that is subject to the tax.

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119
Q

gift tax return

A

IRS Form 709.

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120
Q

gift-leaseback

A

A transaction involving one party making a gift of property to an individual or to a trust and subsequently leasing the same property back.

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121
Q

gift to a non-citizen spouse

A

The marital deduction cannot be used for gifts made to a non-citizen spouse.

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122
Q

gift splitting

A

A gift tax reduction technique that allows each spouse to reduce a gift by one-half of its value.

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123
Q

grantor

A

A person who creates a trust.

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124
Q

grantor charitable lead trust (CLT)

A

A charitable lead trust that treats the grantor as the owner for income tax purposes. A grantor CLT typically allows a large income tax deduction in the year that it is funded.

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125
Q

grantor retained annuity trust (GRAT)

A

A trust that provides a qualified annuity interest based on a fixed dollar amount or percentage of the value of the trust to an income beneficiary for a set term.

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126
Q

grantor retained income trust (GRIT)

A

A trust that provides a non-qualified annuity interest to the grantor with a remainder beneficiary receiving property at the end of the set term.

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127
Q

grantor retained unitrust (GRUT)

A

A trust that provides a qualified annuity interest based on a fixed percentage of the net fair market value of the trust determined annually to an income beneficiary for a set term.

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128
Q

grantor trust rules

A

Provisions found in IRC §§ 671 to 677 that apply when a grantor is the owner of the trust and that qualify a trust as a grantor trust for income tax purposes.

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129
Q

grantor trust

A

A trust that is disregarded as a separate taxable entity where the trust income is taxable to the grantor.

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130
Q

gross estate

A

A tax concept that refers to the total of all property interests held by a decedent that is included in the decedent’s estate.

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131
Q

gross-up rule

A

A provision under IRC § 2035 that requires that gift taxes paid within three years of a decedent’s death be added back into the gross estate.

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132
Q

guardianship

A

A fiduciary relationship created by the law for the purpose of enabling a guardian to manage the person or estate

133
Q

hanging power

A

A trust provision that allows a beneficiary to withdraw more than the $5

134
Q

health care proxy

A

A legal document that designates an individual to make decisions regarding medical treatment in the event the principal is not legally competent. Also known as a power of attorney for health care.

135
Q

holder of a power of appointment

A

The person who has the right to exercise a power of appointment per the terms of a trust.

136
Q

holographic will

A

A handwritten will.

137
Q

homestead

A

A state statute that offers certain rights and protections to a surviving spouse. Typically

138
Q

incapacity

A

The legal inability to make or communicate responsible decisions regarding one’s health

139
Q

incident of ownership

A

When a person retains a measure of control over a life insurance policy.

140
Q

inclusion ratio

A

The ratio applied to generation-skipping transfers when determining the amount of property subject to GST tax. The inclusion ratio is calculated by subtracting the applicable fraction from one.

141
Q

income first rule

A

A rule providing that the trustee’s classification of a distribution as ‘income’ or ‘corpus’ is ignored; instead

142
Q

income in respect of a decedent (IRD)

A

The right to income earned but not received prior to a person’s death. IRD could be income that was already earned

143
Q

income interest

A

An interest in a trust’s income.

144
Q

income shifting techniques

A

Available for parents who transfer income-producing property to family members in a lower income tax bracket.

145
Q

incomplete gift

A

A gift that is not a complete transfer of property. An incomplete gift is not subject to gift tax.

146
Q

indirect gift

A

A gift that is not made outright to a donee but benefits the donee. An indirect gift is subject to the gift tax.

147
Q

indirect skip

A

A transfer made to a trust that includes skip persons and non-skip person beneficiaries.

148
Q

individual trustee

A

An individual named to serve as trustee.

149
Q

inheritance tax

A

A tax that is assessed based on an individual’s right to inherit or receive assets from a decedent.

150
Q

inherited IRA

A

An IRA that is inherited by a beneficiary.

151
Q

installment sale

A

A transaction in which an owner sells property to a buyer

152
Q

intangible property

A

An individual’s bank

153
Q

intentionally defective grantor trust (IDGT)

A

A trust designed intentionally so that income is taxed to the grantor rather than to the trust.

154
Q

inter-vivos gift

A

A gift made during the donor’s lifetime.

155
Q

inter-vivos trust

A

A trust established during the settlor’s lifetime.

156
Q

interpolated terminal reserve

A

The value of a life insurance policy based on the policy’s reserve value on the policy anniversary date.

157
Q

intestacy/intestate succession

A

The transfer of assets per a state’s laws of intestacy.

158
Q

intestate

A

Lacking a will; a person who dies without a will is said to die intestate.

159
Q

intra-family loan

A

A loan made between family members

160
Q

IRC § 2032A special use valuation

A

Allows for certain farm or real property in a closely held business to be valued at less than fair market value.

161
Q

IRC § 6166 installment payment of estate tax

A

Allows an executor under certain circumstances to pay federal estate taxes attributable to the decedent’s business over 14 years.

162
Q

IRC § 7520 rate

A

The interest rate set by the IRS on a monthly basis.

163
Q

irrevocable life insurance trust (ILIT)

A

A trust that is the owner of an insurance policy. When funded properly

164
Q

irrevocable trust

A

A trust that cannot be amended

165
Q

joint tenancy with right of survivorship

A

A form of co-ownership of property where the property owners have an undivided right to the enjoyment of property. Joint tenants own property equally

166
Q

joint tenants

A

Two or more individuals who own property together.

167
Q

joint will

A

One will created for two individuals

168
Q

key person life insurance

A

A policy owned by a business that insures the life of a valuable employee.

169
Q

lapse of a power (of appointment)

A

A power of appointment that is not exercised by a holder within a stipulated timeframe.

170
Q

laws of intestacy

A

State laws that provide for the disposition of a decedent’s assets if he does not have a will.

171
Q

legatee

A

A person to whom assets are bequeathed in a will.

172
Q

life estate

A

A lifetime interest in real property or income from a trust. A person can either create a life estate in his own property or in a trust

173
Q

limited liability company (LLC)

A

A form of business organization intended to obtain for investors the same advantages of limited liability as in the corporate form of business while at the same time avoiding corporation income tax rules.

174
Q

limited partnership interest

A

A partnership interest with limited rights and no control over management of an FLP.

175
Q

limited powers of appointment

A

A power of appointment granting the holder the ability to appoint assets to a group of individuals or a charity that is limited by the donor. This POA is also known as a ‘special’ power of appointment.

176
Q

living will

A

A legal document that enables an individual to direct his wishes regarding life-sustaining medical treatment in the event he becomes so ill he cannot at the time communicate his wishes. Also known as an advance directive or natural death declaration.

177
Q

look-through trust

A

A trust in which all potential trust beneficiaries are identifiable. If a trust is a look-through trust

178
Q

marital deduction

A

An unlimited tax deduction that applies to gifts or bequests made directly or indirectly to a spouse who is a U.S. citizen.

179
Q

marketability discount

A

A discount applied to the value of limited partnership interests indicating that there is a lack of a readily available market for trading.

180
Q

minority discount

A

A discount applied to FLP minority interests reflecting the inability of a limited partner to control the operations of the FLP and to invest its assets in a manner that is of the greatest benefit to the limited partner.

181
Q

mortmain statutes

A

State laws that prevent a person from bequeathing significant property interests to charities or religious organizations if the person is near death.

182
Q

mutual will

A

A will in which each party agrees to bequeath a particular property interest to the other.

183
Q

natural death declaration

A

A legal document that enables an individual to direct his wishes regarding life-sustaining medical treatment in the event he becomes so ill he cannot at the time communicate his wishes. Also known as a living will or advance directive.

184
Q

net gift

A

A taxable gift made to a donee

185
Q

net income makeup charitable remainder unitrust (NIMCRUT)

A

A type of CRUT that provides that only trust income can be used to make the unitrust payment to the beneficiary and that if the net income produced by the trust in any given year is inadequate to meet the unitrust payment amount

186
Q

CRUT

A

A type of CRUT that provides that only trust income can be used to make the unitrust payment to the beneficiary and that if the net income produced by the trust in any given year is inadequate to meet the unitrust payment amount

187
Q

non-citizen spouse

A

A person who is not a U.S. citizen who is married to a U.S. citizen.

188
Q

noncumulative right of withdrawal

A

A provision limiting the amount that can be withdrawn under a power of appointment or a Crummey power to a specific period of time.

189
Q

nuncupative will

A

An oral will.

190
Q

nondurable power of attorney

A

A power of attorney limited in scope that terminates at the principal’s incapacity.

191
Q

non-grantor charitable lead trust

A

A charitable lead trust where the grantor is not treated as the trust owner for income tax purposes.

192
Q

non-voting interests

A

LLC interests that are not permitted to participate in the management of an LLC.

193
Q

operation of law

A

The transfer of property by state law rather than by will or contract.

194
Q

over-qualification of an estate for the marital deduction

A

Reliance on the marital deduction to reduce a taxable estate rather than a decedent’s unified credit.

195
Q

payable on death (POD)

A

A designation on a bank account naming the individual

196
Q

per capita

A

Division of property per named individual or ‘per head.’

197
Q

per stirpes

A

Division of property by family group rather than individual.

198
Q

percentage-of-contribution rule

A

A rule that applies to the inclusion of property in a decedent’s estate when nonspouses own property as JTWROS.

199
Q

permanent insurance

A

A life insurance policy that combines a death benefit with a savings element in the form of cash value.

200
Q

perpetual trust

A

A trust created by a state that can last for many generations because it is not subject to the rule against perpetuities.

201
Q

personal representative

A

A person named in a will as executor of the estate.

202
Q

plenary guardianship

A

Guardianship of a person

203
Q

pooled income fund

A

A trust generally created and maintained by a public charity rather than a private donor that meets certain requirements.

204
Q

portability

A

A provision of the 2010 tax law that allows a surviving spouse to use the decedent spouse’s unused estate tax exclusion.

205
Q

postnuptial agreement

A

A legal contract entered into after marriage that spells out each party’s rights to property.

206
Q

pour-over trust

A

A trust funded by the ‘pouring in’ of assets from a decedent’s will.

207
Q

pour-over will

A

A will that directs property to ‘pour’ into a revocable trust following the testator’s death.

208
Q

power of appointment

A

The power to invade or consume trust income or corpus.

209
Q

power of appointment trust

A

A marital trust that gives the surviving spouse a general power of appointment over the trust property.

210
Q

power of attorney

A

A document that names an agent to transact business for the principal until the principal’s death.

211
Q

power of attorney for health care

A

A legal document that designates an individual to make decisions regarding medical treatment in the event the principal is not legally competent.

212
Q

predeceased parent rule

A

A rule applying to GSTs that provides that if the skip person’s parent who is a lineal descendant of the transferor is deceased at the time of the transfer

213
Q

preferred stock recapitalization

A

A strategy whereby a business recapitalizes stock into voting preferred shares and non-voting common shares.

214
Q

prenuptial agreement

A

A legal contract entered into in anticipation of marriage that spells out each party’s rights to property.

215
Q

present-interest gift

A

A gift giving the donee the unrestricted right to the immediate use or enjoyment of or income from a property.

216
Q

presumption of survivorship clause

A

A clause in a will that determines the order of death for each spouse when it cannot be determined which spouse died first.

217
Q

pretermitted heir

A

A person such as a spouse or a child who is not named in a will.

218
Q

principal

A

A person who gives an agent authority to act on his behalf in a power of attorney or a health care proxy.

219
Q

private annuity

A

A sale of property to a buyer who will make fixed payments to the seller for life.

220
Q

private foundation

A

A legal entity

221
Q

probate

A

The court-supervised process of settling a decedent’s estate.

222
Q

progressive

A

Increasing in rate as the base increases.

223
Q

public charity

A

A charitable organization recognized by the IRS as a public charity.

224
Q

QTIP election

A

A gift tax or estate tax election made by a donor on IRS Form 709 or an executor on Form 706 to qualify a life estate given to a spouse for a marital deduction.

225
Q

QTIP trust

A

A trust that qualifies for a marital deduction in the decedent’s estate if the executor makes a QTIP election on the estate tax return.

226
Q

qualified charity

A

A charitable organization that meets certain IRS requirements.

227
Q

qualified charitable distribution (QCD)

A

A charitable giving strategy whereby a donor aged 72 or older directs monies from his IRA to pass directly to a charitable organization.

228
Q

qualified disclaimer

A

A written refusal to accept a gift or a bequest.

229
Q

qualified domestic trust (QDOT)

A

A trust that meets the requirements for a marital deduction in the deceased spouse’s estate for property passing to a non-U.S. citizen spouse.

230
Q

qualified personal residence trust (QPRT)

A

An irrevocable trust that holds a person’s residence

231
Q

Terminable interest property

A

Property gifted or bequeathed to a spouse which qualifies for the marital deduction

232
Q

qualified transfer (exempt gift)

A

A payment made directly to an educational institution to pay for someone’s tuition or to a health care provider to pay for someone’s medical expenses

233
Q

quasi-community property

A

Property acquired in a common-law state that would have been deemed community property if acquired in a community property state.

234
Q

reciprocal will

A

A will typically created by spouses in which each party agrees to leave certain property to each other; a mutual will.

235
Q

release a general power of appointment

A

A holder of a power of appointment can give up his right to make withdrawals from a trust by providing written notification to the trustee

236
Q

remainder interest

A

A split property interest in which a person’s interest in property becomes effective at some future time.

237
Q

remainderman

A

A remainder beneficiary in a split ownership property arrangement.

238
Q

required minimum distribution (RMD)

A

The amount required to be taken as a distribution from a retirement plan based on the plan owner’s age and IRS actuarial tables.

239
Q

res

A

The principal of a trust

240
Q

resident alien

A

A non-citizen spouse who lives in the United States.

241
Q

residual bequest

A

A provision in a will that disposes of all property that has not been disposed of through specific or general bequest.

242
Q

residuary clause

A

A clause in a will that disposes of all property that has not otherwise been disposed of.

243
Q

reverse gift

A

A donor gifts property in anticipation of a donee’s death to receive a step-up in basis when the same property is bequeathed to the donor.

244
Q

reverse QTIP election

A

An election made by the executor on IRS Form 706 allowing a decedent to be treated as the transferor of a GST that occurs upon the surviving spouse’s death.

245
Q

reversionary interest

A

The donor retains a future interest in property that is gifted to another person.

246
Q

revocable trust

A

A trust created by a grantor that can be amended

247
Q

rule against perpetuities

A

A statutory limit on the duration of trusts that provides that the interests of a beneficiary in a trust must generally vest within the period allowed.

248
Q

salary increase pension plan

A

An employee benefit plan that provides an employee or business owner with additional deferred compensation.

249
Q

sale-leaseback

A

A transaction involving one party selling property to another party and then leasing back the same property.

250
Q

section 303 stock redemption

A

Allows the purchase of a portion of a decedent shareholder’s stock by his or her corporation to be treated as a sale or exchange rather than as a dividend.

251
Q

section 2503(b) trust

A

A split-interest trust with multiple beneficiaries where all income must be distributed to beneficiaries with a present interest.

252
Q

section 2503(c) trust

A

A trust established for one beneficiary where income can accumulate and must be distributed when the beneficiary reaches age 21.

253
Q

self-cancelling installment note (SCIN)

A

A variation of the installment sale providing that the balance of any payments due at the date of the lender’s death will be automatically canceled.

254
Q

separate asset

A

An individually owned asset that is not considered community property.

255
Q

settlor

A

The person who creates a trust

256
Q

sharing concept

A

A concept applied to the taxation of income earned by trusts that provides that income tax liability be shared by beneficiaries and the trust.

257
Q

simple trust

A

A trust where all trust income must be distributed in the year it is earned.

258
Q

single-life annuity

A

Annuity payments are calculated on the life expectancy of one individual.

259
Q

situs

A

The physical location of property; the jurisdiction in which real property is subject to estate tax.

260
Q

skip person

A

A person who is two or more generations below the transferor in a GST.

261
Q

skip person trust

A

A trust where all trust beneficiaries are skip persons.

262
Q

sole ownership

A

Outright ownership of an asset

263
Q

special needs trust

A

A type of trust designed to provide financial security for disabled individuals who receive government assistance.

264
Q

special or limited power of appointment

A

A power of appointment granting the holder the ability to appoint assets to a limited group of individuals or a charity.

265
Q

specific bequest

A

The disposition of a specific asset under a will.

266
Q

spendthrift clause

A

A provision in a trust that protects the beneficiary’s income and assets from claims of creditors.

267
Q

split-dollar life insurance

A

An arrangement where a life insurance policy’s cash value

268
Q

split-interest purchase of property

A

One person purchases a term interest in property and another person purchases the remainder interest.

269
Q

split-interest trust

A

A trust that has beneficiaries with both present and future interests.

270
Q

split-interest charitable transfer

A

A gift or bequest to a charity with interests that are split between present-income interest and a remainder interest.

271
Q

sponge tax

A

A tax designed to absorb the credit for state death tax that is allowed by the federal government.

272
Q

spousal rollover

A

An IRA that can be created by a surviving spouse who is a beneficiary of a deceased spouse’s retirement plan assets.

273
Q

spray provision

A

A trust provision that gives the trustee discretionary authority to distribute income and corpus to trust beneficiaries in equal or unequal shares. A trust that includes a spray provision can be referred to as a spray trust.

274
Q

sprinkle provision

A

A trust provision that gives the trustee discretionary authority to distribute income to trust beneficiaries in equal or unequal shares. A trust that includes a sprinkle provision can be referred to as a sprinkle trust.

275
Q

springing power of attorney

A

A power of attorney that becomes effective upon the occurrence of a specified event

276
Q

state death tax deduction

A

A deduction allowed on IRS Form 706 for estate taxes paid to a state.

277
Q

state laws of intestacy

A

State laws that determine how assets are distributed when a decedent does not have a valid will.

278
Q

statutory will

A

A will that is executed in compliance with state statute.

279
Q

stepped-up basis

A

Assets owned by a decedent receive a new federal income tax basis equal to the property’s fair market value for federal estate tax purposes.

280
Q

stock redemption plan

A

A contract made by a company to purchase stock from a deceased shareholder’s estate using life insurance proceeds.

281
Q

subtrusts

A

Separate trusts created within an irrevocable trust for each individual trust beneficiary.

282
Q

support trust

A

A trust created for the purpose of providing child support payments to beneficiaries whose parents are divorced.

283
Q

survivorship annuity

A

Annuity payments made for the lifetime of two annuitants that will continue after the death of the first annuitant.

284
Q

survivorship life insurance

A

A life insurance policy that insures more than one person.

285
Q

taker in default

A

The ultimate recipient of property.

286
Q

tangible (personal) property

A

An individual’s personal assets or ‘things’ such as clothing

287
Q

taxable accounts

A

Bank

288
Q

taxable gift

A

The remaining taxable portion of a gift after tax-reducing techniques such as gift splitting

289
Q

tax-deferred accounts

A

Accounts such as retirement assets and after-tax annuities that are not subject to current income tax on investment capital gains or income. Instead

290
Q

tax exclusive

A

When the tax paid on a gift is paid from the donor’s separate funds and does not reduce the value of the gift the donee receives.

291
Q

tax inclusive

A

When estate tax liability is paid with money that was taxed in the decedent’s estate.

292
Q

taxable distribution

A

A distribution of income or corpus from a trust to a skip person that is not otherwise subject to estate or gift tax.

293
Q

taxable estate

A

The value of an estate after subtracting the available marital

294
Q

taxable termination

A

The termination by death

295
Q

tenancy by the entirety

A

A form of joint tenancy limited to spouses.

296
Q

tenancy in common

A

A form of co-ownership of property. Tenants in common own an undivided right to possess property. Each tenant owns a separate fractional interest

297
Q

tentative tax

A

Once the tentative tax base has been determined

298
Q

tentative tax base

A

The value of an estate after the value of adjusted taxable gifts is added to the taxable estate.

299
Q

term insurance

A

A type of life insurance purchased for a set period of time.

300
Q

terminable interest property (TIP)

A

Property gifted or bequeathed to spouses that does not qualify for a marital deduction because the donee spouse lacks control over the property and cannot designate the remainder beneficiaries.

301
Q

testamentary trust

A

A trust established per the terms of a decedent’s will.

302
Q

testate

A

A person who dies with a will is said to die testate.

303
Q

testator

A

The person who executes or makes a will.

304
Q

three-year rule

A

A rule under IRC § 2035 that provides certain property interests be brought back into a decedent’s estate for estate tax purposes if the decedent dies within three years of the transfer.

305
Q

Totten trust

A

A revocable arrangement whereby an individual deposits funds into a bank account in his own name as trustee for another person. The arrangement terminates upon revocation

306
Q

transfer on death (TOD)

A

The designation on a stock

307
Q

transferee

A

The recipient of a gift such as a GST.

308
Q

transfer-for-value rule

A

A rule providing that if a life insurance policy is sold to a beneficiary

309
Q

transferor

A

The person who makes a gift such as a GST to a skip person.

310
Q

trust

A

A legal entity that holds property for trust beneficiaries and can provide tax advantages and creditor protections.

311
Q

trust corpus

A

The principal of a trust

312
Q

trustee

A

A person who holds legal title to trust assets and administers those assets for trust beneficiaries. A trustee can manage and invest assets

313
Q

trustor

A

The person who creates a trust. Also known as the grantor.

314
Q

trust protector

A

A fiduciary who may be given certain powers to provide greater flexibility in carrying out trust provisions in the future.

315
Q

unified credit

A

The credit available to offset gift or estate taxes. This credit is $4

316
Q

unfunded ILIT

A

An irrevocable life insurance trust that holds only title to a life insurance policy with no additional assets that could generate income to pay the annual policy premiums.

317
Q

Uniform Gift to Minors Act (UGMA)

A

A custodial account for minors.

318
Q

Uniform Transfer to Minors Act (UTMA)

A

A custodial account for minors that holds assets such as real estate

319
Q

unitrust payment

A

An annual payment of a fixed percentage of the net fair market value of trust assets

320
Q

universal life insurance

A

An interest-sensitive life insurance policy in which the investment

321
Q

valuation discount

A

A discount applied to the value of an asset for various reasons

322
Q

variable life insurance

A

A permanent life insurance policy that has an investment component. The insured can select different subaccounts for investing the cash value.

323
Q

vested remainder interest

A

An interest in a trust’s remainder that is a vested or certain interest.

324
Q

voting interests

A

Managing interest in an LLC.

325
Q

ward

A

An individual who is legally incapable of taking care of himself or of managing his financial affairs.

326
Q

whole-life insurance

A

A permanent policy with coverage guaranteed for the insured’s life.

327
Q

will contest

A

A challenge to a decedent’s will in probate court.

328
Q

will substitutes

A

Alternative methods of transferring property at death such as trusts

329
Q

zeroed-out GRAT

A

A GRAT with an annuity stream of income that pays out the entire principal of the trust.

CFP - Steps in the Financial Planning Process (9 decks)

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