Estate Planning: Legal Terms You Need to Know

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By Angela M. Ward, Attorney

We all want to take care of our loved ones while we are alive but taking care of them after we’re gone is just as important. A solid estate plan can help you do just that. Dying without a last will and testament and estate plan can have unwanted consequences for those left behind, including financial losses and legal headaches. A well-organized estate plan not only provides for the distribution of assets, but it also covers other important matters, such as end-of-life wishes and the care of dependents. Every situation is unique and there are many factors to consider. Understanding these legal terms can help.

A-B Trust

An A-B trust is a trust created by a married couple to maximize their federal estate tax exemptions and minimize the estate tax owed. Upon the death of the first spouse, the A-B trust splits into two separate trusts so each spouse can pass the maximum allowed to avoid federal estate taxes. The survivor’s trust, or A trust, is a revocable trust, and the bypass trust, or B trust, is an irrevocable trust. The surviving spouse never owns the B trust, so they do not owe estate taxes on it.

Administrator

An administrator is someone appointed by the court to handle an estate in cases where there is no will or the will does not name an executor.

Alternate Beneficiary

The alternate beneficiary is the person who will receive the assets and property left in a will if the primary beneficiary is deceased or refuses the inheritance.

Annual Exclusion

The annual exclusion is the amount of money someone can give to another person without having to pay any federal gift tax. The annual exclusion is currently $15,000 per person per year.

Assets

Anything of value that someone owns, such as property, jewelry, bank accounts, insurance, investments, furniture, and collectibles.

B Trust

Also known as the bypass trust, this part of the A-B trust holds assets equal to the amount of the decedent’s estate tax exclusion and avoids, or bypasses, further estate taxes when the beneficiary dies.

Beneficiaries

Beneficiaries are the people designated to receive money or other assets in a will.

Certificate of Trust

A certificate of trust is a legal document that includes only the essential information about a trust. It verifies that the trust exists, identifies the trustee, and outlines the trustee’s authority to act on behalf of the trust. A certificate of trust serves as a simplified form of verification should there be a need to transfer assets or open accounts in the name of the trust. A certificate of trust does not include private details about the trust’s beneficiaries, specific assets, or inheritances. 

Children’s Trust

A children’s trust is a way to leave assets to a child who is still a minor. Parents can put the assets in a trust, designate an age at which the child can inherit, and appoint a trustee to manage the assets until the child reaches that age. 

Codicil

A codicil is a document that modifies or changes a will.

Common Trust

A type of living trust created by two or more people, usually a married couple.

Community Property

In community property states, spouses share equally in any assets they acquire and any debts they incur while married. If one spouse dies, the other is responsible for their debt, even if it is only in the deceased spouse’s name. Pennsylvania, however, is not a community property state. In Pennsylvania, a surviving spouse generally does not have to pay the debts of a deceased spouse unless they co-signed on the debt.

Conservator

A conservator is a court-appointed guardian who is responsible for a person’s care and the management of their financial and daily affairs when that person is unable to care for themselves due to mental or physical limitations or old age.

Contest

To contest a will means to challenge the terms of a will from a legal standpoint. It is not enough to believe the will is unfair. To successfully contest a will, one must have evidence that at least part of the will is illegal. A court might invalidate a will if there is proof of fraud, forgery, a mistake, or a lack of mental capacity on the part of the person creating the will.

Custodian

A person named to manage assets left to a minor in a will until the child reaches a certain age.

Deceased

The person who has died.

Deed

A legal document used to transfer ownership of real estate from one person to another.

Durable Power of Attorney

A durable power of attorney is a legal document that gives someone the authority to act on another person’s behalf in either a limited or general capacity. It remains in effect after the person is incapacitated and does not terminate until their death.

Equity

Equity is the market value of an asset minus any loans or liabilities.

Estate

An estate refers to someone’s net worth at the time of their death. It includes anything of value they own, from real estate to investments, minus any debts or other liabilities.

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Executor

A person named in the will to carry out the terms of the will, from paying debtors to distributing assets to heirs.

Fiduciary

A fiduciary is a trustworthy person or organization that acts on someone’s behalf and puts that person’s best interests ahead of their own. Fiduciaries can serve several roles, including as a personal representative, guardian, trustee, or executor.

Funding

When someone funds a living trust, they transfer ownership of their assets from themselves to their trust.

Generation-Skipping Transfer Tax

The Generation-Skipping Transfer Tax, or GSTT, is a federal tax on gifts made during someone’s lifetime or bequeathed upon their death directly to grandchildren or generations below grandchildren. The GSTT is designed to prevent someone from avoiding estate taxes by skipping generations when making bequests. For example, if someone dies and leaves an inheritance to their children, the children will pay estate taxes on whatever amount of that inheritance exceeds the federal estate tax exemption. Should those children save that entire inheritance to bequeath to their own children, that same inheritance will be taxed again upon their death. In the past, some people avoided this double tax by skipping a generation when bequeathing property. The Generation-Skipping Transfer Tax closes that loophole.

Gift

The transfer of money or property from one person to another while receiving nothing, or less than full value, in return.

Gift Tax

A federal tax on gifts that exceed a certain amount. Currently, the IRS only taxes annual gifts that exceed $15,000 per person or lifetime gifts that exceed $11.58 million per person. In the case of married couples, each spouse may give those amounts before a gift tax would apply.

Gross Estate

The total value of everything someone owns at the time of their death before debts are paid.

Heir

An heir is someone legally entitled to inherit all or part of the estate of someone who dies without a will.

Incapacitated/Incompetent

A person who is incapacitated or incompetent is significantly impaired to the point where they cannot manage their financial affairs or ensure their own health and safety.

Inheritance

Money or property that a person receives from someone who has died.

Irrevocable Trust

An irrevocable trust is a trust that cannot be changed, amended, or terminated except under very limited circumstances.

Intestate

Dying without a will.

Liquid Assets

Liquid assets refer to cash on hand or assets that one can easily convert to cash, such as a checking or savings account or certain investments.

Living Probate

Living probate is a legal process in which someone petitions the court to appoint a guardian to manage finances and handle the daily affairs for an incapacitated person.

Living Trust

A living trust is a trust someone creates while they are still alive. The person creating the trust transfers ownership of their assets to the trust and gives instructions for managing those assets while they are living and distributing them upon their death. A living trust avoids probate and many associated costs at the time of death.

Minor

A minor is someone who has not reached the legal age of adulthood, which in Pennsylvania is 18.

Net Estate

The value of an estate after all debts have been paid.

Payable on Death or Totten Account

A type of bank account that immediately transfers to a designated beneficiary named on the account once the owner of the account dies.

Per Capita

A method of distributing assets where all heirs share equally in the inheritance, regardless of their generation.

Per Stirpes

Per stirpes is a method of distributing assets in which each branch of a family receives an equal share. For example, if two adult brothers were to receive equal shares of an inheritance from their father, but one of those brothers dies prematurely, then the children of the deceased brother would divide his share of the assets equally.

Personal Property

Personal property is movable property, such as furniture, cars, jewelry, and cash. It does not include property in a fixed location, such as real estate or land.

Power of Attorney

A power of attorney (POA) is a legal document that allows someone to identify and authorize another person to take care of legal and financial matters on their behalf should they be unable to do so themselves. 

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Probate

Probate is the legal process of handling the estate of someone who has died. If there is a will, the process includes validating the will and supervising the executor to ensure they pay debts and distribute assets according to the wishes of the decedent. If there is no will, the court will distribute assets according to Pennsylvania’s intestate laws.

Probate Fees

Probate fees cover court costs and other expenses associated with the probate process, including executor fees, legal fees, register of will fees, and appraisal fees. Probate fees are paid using assets from the estate. Generally, the estate covers the probate fees before the distribution of assets to the heirs.

Real Property

Real property is immovable property, such as land, houses, and other buildings.

Revocable Trust

Unlike an irrevocable trust, when a person sets up a revocable trust they can change, amend, or terminate the trust during their lifetime.

Settle an Estate

Settling an estate refers to the process of managing the final affairs of an estate after someone dies, such as appraising assets, paying any taxes and debts, and distributing assets to heirs.

Special Gifts

Special gifts are specific assets that a person lists in their will and bequeaths to specific individuals or organizations upon their death.

Special Needs Trust

A trust created for a person with special needs to provide what any assistance is not providing, and to maintain eligibility for assistance. 

Tax-Deferred Plan

A tax-deferred plan is a type of retirement savings plan, such as an IRA or 401(k), that qualifies for special tax treatment. Specifically, the owner of the plan saves money because they don’t have to pay taxes on contributions to the plan or appreciation of assets until they withdraw funds at retirement when their income and tax rate are lower.

Taxable Gift

The federal gift tax is designed to keep taxpayers from trying to avoid estate taxes by giving away their assets before they die. A taxable gift is any gift whose value exceeds the federal gift tax exemption, which is currently $15,000 in one year to someone other than a spouse. However, not all gifts are taxable, such as gifts to charity or political organizations and gifts to cover someone’s tuition or medical expenses.

Testamentary Trust

A testamentary trust is a trust created in a will that only goes into effect at the time of death.

Testate

Having a valid will at the time of death.

Title

A title is a document that proves legal ownership of property or another asset.

Trust

An arrangement whereby a trustee holds property for the good of one or more beneficiaries.  There are many types of trusts that can be part of an estate plan, the most common of which is a trust for minors which provides a trustee to handle assets that a minor beneficiary (under the age of 18 or any other age that the trust would provide) until the beneficiary reaches the age at which distribution will be made.  The trustee typically steps in as parent and provides for the beneficiary as needed until the beneficiary reaches the ages of majority or at which, pursuant to the terms of the trust, distribution to the beneficiary is made. 

Other trusts are created to avoid federal estate tax, which with the exemption to said tax being $11.58 million per individual in 2020 and rising each year, are not generally required.

Uniform Transfer to Minors Act (UTMA)

The Uniform Transfer to Minors Act is a law that allows someone to transfer assets to a minor child and appoint a custodian who will manage those assets on behalf of the child until the child reaches the legal age to control the assets themselves.

Warranty Deed

A warranty deed guarantees that someone can transfer the title to real estate free and clear, meaning there are no liens against the property and no one can take the property as payment for a debt.

Will

A will is a legal document in which a person details their wishes regarding who should receive their assets, who should care for minor children, and who should manage the final affairs of their estate when they die.

The Law Office of Going and Plank in Lancaster is here to help.

 Creating a smart estate plan can be a daunting task. An experienced estate attorney can save probate and tax costs, help plan guardianship for children and other dependents, offer counsel regarding problematic family issues, and ensure that a will is legally valid and effectively reflects a person’s final wishes. Contact the Law Offices of Going and Plank in downtown Lancaster today to schedule a consultation.


Want to find out more about Angela M. Ward and Estate Planning? Read these articles and blogs:

Why New Parents Need Estate Plans

Understanding the Power of Attorney in PA

8 Things to Remember When Creating an Estate Plan

Estate Plans, Power of Attorney, Guardianship, and Living Wills

Why Young Parents Need a Will in Pennsylvania

7 Steps to Creating a Will and Estate Plan

Estate Planning for Baby Boomers

Changes in the PA Law: Power of Attorney

10 Resolutions: Wills and Estate Planning

7 Common Estate Planning Mistakes

Or click here to discover an even wider range of legal topics in our legal blog.

Maggie Vergenes

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