Glossary of Estate Planning Terms

When planning your estate, it is very valuable to learn some of the estate planning terms that your attorney will be using when he or she discusses your particular estate planning issues. This brochure lists many of the basic terms you should become familiar with during this process.

Advance Directive for Health Care: This document deals with the removal or refusal of medical care. It is often called "the living will", but properly called the Advance Directive for Health Care as given effect by the Oklahoma Rights of the Terminally Ill or persistently Unconscious Act, Title 63 O.S. Sec 3101.1 et seq. When two physicians decide that a patient is either persistently unconscious (i.e. vegetative state) or suffering from a terminal condition that will cause death within six months, this document becomes effective.

Beneficiary: One who benefits from a trust by the receipt of distributions of net income and/or principal. This can be a person or a charitable organization. The beneficiary is usually designated to receive the income or principal from the trust.

Bequest: Personal property given to another by will. Compare devise.

Claim: A creditor's demand for payment of a debt.

Charitable Trust: This is usually an irrevocable trust whereby investments, cash or real estate is transferred to a trust whose beneficiary is a particular charity, such as a church or charitable organization. The trustee manages the investments and pays the church usually the net income from the investments according to the terms of the trust document. This results in the value of the transferred assets being taken out of the donor's estate for estate tax purposes and provides for professional management of the trust assets to benefit the charity.

Codicil to a Will: An amendment to a previously written will.

Contingent Beneficiary: A beneficiary whose interest is conditioned upon a future event occurring.

Court Ordered Settlement Trust: This involves settlement situations in lawsuits over personal injury claims or life insurance policy proceeds. The court may order that the money, in an agreed settlement of the suit, be paid into a trust with a trustee to manage the funds for the benefit of a minor or the injured party.

Decedent: A deceased person.

Devise: Real property is given to another by will. Compare to bequest.

Discretionary Trust: A trust which permits the trustee to distribute or withhold distribution of income and/or principal to the beneficiaries at the trustee's discretion.

Disposition: A transfer of property. Read the Most Common Ways to Transfer Property. 

Distributee: A person entitled to a share of an estate disposed of by will.

Durable Power of Attorney: Under the Uniform Durable Power of Attorney Act, Title 58 O.S. Sec. 1072. 1, et seq.; a person may give an agent the power to act for them. This agent is known as the "Attorney in Fact". This document must be signed before a Notary Public and two adult witnesses who are not related by blood or marriage to the principal. The language in the document must state that the power to act given to the "Attorney in Fact" will endure past the time the person signing it becomes incompetent. The "Attorney in Fact" can authorize medical treatments, decide what hospital or nursing home to use, as well as make business decisions, sign checks and tax returns. When the incompetent person dies, the Power of Attorney ceases to be effective.

Educational Trust: Often parents or grandparents establish this type of irrevocable trust to start an educational fund for a child and can get the transferred assets out of the parent's or grandparent's estate for tax purposes.

Estate: All of a person's real and personal property he/she can dispose of at his or her death. This does not include property held in Joint Tenancy with the Right of Survivorship. That type of property will pass to the survivor.

Estate Tax: The tax paid by the administrator or executor of a decedent's estate out of the estate's assets.

Executor: A person appointed by a testator in a will to carry out the will's provisions. A "co-executor" acts as executor with another or others. Also called Personal Representative.

Fiduciary Capacity: One is said to act in "fiduciary capacity" when the business which he transacts or the money or property which he handles, is not his own or for his own benefit, but for the benefit of another person. The fiduciary is bound by a duty to act in good faith (examples: trustees, executors, Attorney in Fact, etc.)

Gift: A gratuitous, voluntary transfer of property.

Gift Tax: Tax on gifts generally paid by the person making the gift rather than the recipient.

Gift Tax Annual Exclusion: The first $15,000.00 in present-interest gifts a person gives to each recipient during a year. These gifts are not subject to federal gift tax.

Grantee: A person to whom property is transferred.

Grantor: A person who transfers property. The term is commonly used to describe a person who establishes and transfers property to a trust. Also called a settlor or trustor.

Grantor Trust: A trust over which the grantor retains such a degree of control that the trust property is said to belong to him. The grantor must generally pay income taxes on the trust income.

Gross Estate: The sum total of an individual's property for estate-tax purposes.

Guardianship: If you or a family member have failed to address the issues of future incapacity problems when your or their estate plans were prepared, please discuss them with your attorney now. Without the proper legal documents, sudden and severe medical conditions may receive delayed treatment and guardianship proceedings may have to be instituted by the patient's family and attorney. If the patient has failed to plan ahead, a guardianship petition may have to be filed in the district court in the country where the patient resides to deal with health issues and to manage assets, pay bills, etc. while the patient is incapacitated. These are called "Guardianship of the Person" (meaning health care and living arrangements) or "Guardianship of the Estate" (which means asset management prior to death).

Health Care Proxy: Person listed in an Advanced Health Care Directive to make sure the terminal ill person's wishes are met.

Heirs: The persons named in a decedent's will to receive property. The term "Heirs at law" by comparison means those whom the law recognizes as the heirs of a deceased person which is usual the lineal descendants (children and grandchildren).

Holographic Will: A will written entirely in the handwriting of the person making the will. Several states limit the validity of holographic wills.

Income Beneficiary: A person designated to receive distributions of trust income. Compare to remainderman.

Intestate: Dying without a will. In Oklahoma, if a person dies without leaving a Last Will and Testament, his or her property will be disposed of and transferred in accordance with Title 84 of the Oklahoma Statures, Sections 211-232.

Invasion of a Trust: A distribution made from trust principal.

Inventory: A list of a decedent's property and its value.

Joint Ownership: The ownership of property by two or more persons, usually with the right of survivorship.

Letters Testamentary: A document issued by a court to appoint a person, bank or trust company to act as executor or personal representative for the estate of a person who has died with a valid will.

Life Insurance Trust: This type of trust is usually irrevocable, and the trust is made the beneficiary of the Trustor's life insurance policy. This type of trust is used to transfer the value of the policy out of the Trustor's estate for tax purposes and allows a professional trustee to manage the proceeds for a surviving spouse or child's benefit.

Net Income: A person's income after expenses are paid.

Power of Appointment: The authority given by one person to another under a trust instrument or will to decide who will receive and enjoy an interest in property.

Probate: The proving of the validity of a will.

Probate Court: A court with the power to probate wills and settle estates.

Probate Estate: Those assets of a decedent which fall within the jurisdiction of the probate court before being transferred to another person. Life insurance proceeds, for example, are not generally part of the probate estate, because they pass to whomever was listed on the beneficiary designation form.

Remainderman: As applied to trusts, a person who receives the trust principal when the trust ends. A "contingent remainderman" receives the principal only if a specified future event occurs. A "vested remainderman" has an absolute right to receive the trust principal. Compare income beneficiary.

Residue of Residual Estate: The portion of an estate which remains after all debts have been paid and specific bequests and gifts have been distributed. A "residuary clause" provides for the distribution of the residue.

Settlement of an Estate: Payment of all claims against an estate and making all distributions to the heirs.

Settlor: The creator of a trust, also called the grantor or trustor.

Spendthrift Clause: A provision in a trust agreement which prevents a beneficiary from squandering the principal of the trust such as borrowing against the future receipt of the inheritance.

Testamentary Capacity: The legal ability to make a will. The most common requirements are sufficient mental capacity and the reaching of a specified age.

Testamentary Trust: A trust expressed within a will which will come into being at the close of probate proceedings. This type of trust is used when the deceased person chooses not to allow his heirs to receive their inheritance outright, but instead wants a Trustee to manage the investments for the heir and perhaps send net income checks or distribute the funds only upon certain circumstances.

Testator: A person who dies leaving a will.

Trust: The legal relationship where property is transferred to and managed by a person or institution for the benefit of another.

Trust Agreement: The document which creates a trust and establishes the rules which control the trust's management.

Trust Fund: The property held in trust.

Trustee: The person or institution entrusted with the duty of managing property placed in a trust. A "co-trustee" serves as trustee with another. A "contingent trustee" becomes trustee upon this happening of a named future event. Read How to Choose the Right Trustee. 

Trustor: Original owner of the assets, property, etc. which has been placed into a trust, also called settlor or grantor.

Will: A person's Last Will and Testament is the document which expresses the person's instructions as to how they want their property disposed of after their death. It also names the Executor or Personal Representative who the deceased wants the probate court to approve of to be in charge of the probate.

 

 

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