Estate Planning & Probate Glossary

• Intestate property;
• Residuary gifts;
• General gifts; and
• Specific gifts.

• Ademption by Extinction occurs if the gift has been transferred to a third party, eg, by sale.
• Ademption by Satisfaction occurs if the gift has been advanced.

• A. Increased by costs such as:
  • Improvements having a useful life of more than a year;
  • Rehabilitation expenses;
  • Extension of utility lines to the property;
  • Impact fees;
  • Legal fees (such as for defending or perfecting title or for decreasing its property tax assessment);
  • Local improvements;
  • Restoration of property following casualty and theft losses; and
  • Zoning costs; and
• B. Decreased by such things as:
  • Depreciation taken on the property;
  • Investment credits taken; and
  • Insurance reimbursements received as a result of casualty or theft loss;

to yield its “adjusted basis.” Adjusted basis is important as the income tax resulting from the sale of property will generally depend on its gain on sale = amount realized – adjusted basis. See AMOUNT REALIZED; BASIS; GAIN.

• Ancillary Administrator: An administrator appointed to administer the estate of a Decedent in a foreign state. Contrast: DOMICILIARY ADMINISTRATOR.
• Administrator of Undistributed Assets (aka Administrator de bonis non): An administrator appointed to replace a personal representative who has not completed the settlement of an estate due to incapacitation, death, or removal by the court.
• Administrator With the Will Annexed (aka Administrator cum testamento annexo or as Administrator CTA): An administrator appointed to administer the estate of a Decedent who died with a will but without having nominated as his/her personal representative the person appointed by the court.
• Special or Temporary Administrator: An administrator appointed to initiate the management of a Decedent‘s estate until the appointment of the personal representative, often appointed to perform some immediate act, such as to open a safe deposit box thought to contain Decedent‘s will or to collect and preserve Decedent‘s assets and dispose of any that are perishable. In Washington, see RCW 11.32.101.

• Schedule J: Funeral Expenses & Expenses Incurred in Administering Property Subject to Claims
• Schedule K: Debts of the Decedent & Mortgages and Liens
• Schedule L: Net Losses During Administration & Expenses Incurred in Administering Property Not Subject to Claims
• Schedule M: Bequests etc. to Surviving Spouse (Marital Deduction)
• Schedule O: Charitable, Public, and Similar Gifts and Bequests (Charitable Deduction)
• Schedule T: Qualified Family-Owned Business Interest Deduction
• Total Allowable Deductions = Sum of the Above

• Decedent‘s gross estate tax liability resulting in the net estate tax payable by the estate, or from
• Donee‘s gross gift tax liability resulting in the net gift tax payable by the donor.

The current $345,800 applicable credit amount allows assets valued at up to $1,000,000 to pass estate or gift tax free.

The applicable credit amount is the new name for what used to be called the “unified credit,” adopted upon the unification of the estate and gift tax by the Tax Reform Act of 1976. The Economic Growth and Tax Relief Reconciliation Act of 2001, however, changed the estate and gift tax laws, among many other ways, by “freezing” the unified credit for gift tax purposes at its amount applicable for 2002 and 2003, namely, $345,800, while allowing the unified credit for estate tax purposes to continue to increase in time. As a result, the unified credit beginning in 2004 will no longer be “unified,” and the IRS changed the name from the “unified credit” to the “applicable credit amount.”

1. A written will that is “witnessed” or, more correctly, “attested.”
2. The document commonly considered to be a will.

Some states, eg, Washington, do not require that the “witnesses” or, more correctly, the “attestors,” witness the testator‘s actual signing — only that they state that they have personal knowledge that the testator was the person who signed the will.

Basis of property depends upon how it is obtained:

1. If by purchase, basis is the cost of purchase plus other amounts paid in its acquisition, such as freight, installation, and testing costs; excise, real estate, and sales taxes; accounting, legal, recording, and title fees; commissions; etc.
2. If in return for services or in a taxable exchange, basis is the fair market value.
3. If in a non-taxable exchange, such as a like-kind exchange, basis is equal to the basis of the property given up in the exchange (ie, its “carry-over basis” — in other words, the basis of the property given up “carries over” and becomes the basis of the property received in the exchange).
4. If by gift from a donor (ie, lifetime gift) and the fair market value of the property is equal to or greater than the donor‘s adjusted basis in the property at the time of the gift, the basis in the donee‘s hands is the donor‘s adjusted basis (ie, its carry-over basis — in other words, the donor’s basis “carries over” and becomes the donee’s basis) increased by any gift tax paid on the gift. If the fair market value of the property is less than the donor‘s adjusted basis in the property, then the donee‘s basis in the property will ultimately depend on whether a gain or loss is realized upon any subsequent sale.
5. If by gift from a Decedent (ie, as a result of death), basis in the donee‘s hands is the fair market value as of date of death (or, if Decedent‘s personal representative chose to use the alternative valuation date on Decedent‘s estate tax return, as of six months following date of death). If the fair market value of the property is greater than the Decedent‘s adjusted basis in the property at the time of its valuation, then the basis in the property will be increased (“stepped up” to fair market value) in the donee‘s hands and will receive what is known as a “step up in basis.” A step up in basis, however, will no longer be available for assets received from a Decedent dying after 2009 as a result of the recent repeal of the estate tax scheduled to take effect in 2010.

See ADJUSTED BASIS; AMOUNT REALIZED; CARRY-OVER BASIS; GAIN; STEP UP IN BASIS.

1. An insurance contract under which the surety agrees to pay, up to the amount of the face value of the policy, for financial loss caused to the policy holder by specified acts or defaults of a third party; or
2. An interest-bearing security evidencing a long-term debt, issued by a government or corporation, sometimes secured by a lien on property.

The income, gift, or estate tax deduction allowed for a transfer of property to a qualified charity.

1. A law describing the rights of private citizens; or
2. A system of law having its origin in Roman law, as opposed to common law.
   COMMON LAW.

1. A law based on a prior court decision; or
2. The system of law originated and developed in England and based on prior court decisions, on the doctrines implicit in those decisions, and on customs and usages rather than codified written law. Contrast: CIVIL LAW.

In some states (eg, California), such a person is called:

• A conservator if the ward is an adult, and
• A guardian if the ward is a minor.

In other states, such a person is called:

• A conservator only if he/she is appointed to protect the financial and property interests of a ward regardless of the ward‘s age (in other words, to effectively be a conservator of the estate of the ward), and
• A guardian only if he/she is appointed to protect the personal and health interests of a ward regardless of the ward‘s age (in other words, to effectively be a guardian of the person of the ward).

See WARD. Contrast: GUARDIAN.

• Is provided in the will or living trust of the first to die of a married couple,
• At whose death will be funded with the maximum amount of property that can pass estate tax free (the “applicable exclusion amount,” currently, $1,000,000) in that spouse’s estate, and
• Also passes estate tax free at the later death of the surviving spouse.

See DISCLAIMER TRUST; MARITAL DEDUCTION GIFT; MARITAL TRUST.

In order to qualify for the gift tax annual exclusion amount, a gift has to be of a present interest, so assets transferred to a trust for the benefit of another usually fail to qualify for the gift tax annual exclusion amount and are taxable. In order to qualify an asset transferred to a trust for another’s benefit for the gift tax annual exclusion amount, what Mr. Crummy (the taxpayer whose case established the use of trusts that now bear his name) did was to provide that his beneficiary have the power to withdraw, for only a short period of time after its making, any asset that he transferred to the trust for the beneficiary‘s benefit. The beneficiary must then elect:

• To exercise his/her power of withdrawal, in which case the donor‘s annual gift program, at least as regards that beneficiary, will likely stop; or
• To do nothing, allowing his/her power of withdrawal to lapse, in which case the donor’s annual gift program will likely continue for years to come.

• To keep all or part of Decedent‘s gift of the applicable exclusion amount, with the understanding that it will be subject to estate tax at the surviving spouse’s later death, or
• To disclaim all or a part of the gift, in which case, the disclaimed assets will pass to Decedent‘s contingent beneficiary, his/her credit shelter trust, which won’t be subject to estate tax at the surviving spouse’s later death.

• Transferring property upon death in a way that recognizes one’s wishes and the needs of one’s survivors;
• Minimizing any taxes that may be imposed on that transfer;
• Planning for the handling of affairs in case of disability; and
• Considering the deeply personal medical choices to be made as life nears its end.

1. As a noun: A sum of money or other assets set aside for a particular purpose.
2. As a verb: To transfer assets from one owner or account to another, eg, from a trustor to a trustee following the creation of a living trust or from a living trust to a marital trust within the living trust upon the trustor‘s death.

In addition, any payment of any amount on behalf of any donee for school tuition or medical expenses is completely exempt from gift tax as long as the payment is made directly to the school, doctor, hospital, medical facility, etc. and not to the donee.

Lastly, if a donor desires to take advantage of the gift tax annual exclusion amount but is reluctant to make an outright gift to a donee, then other alternates are available, such as a gift to a crummey trust (named for the taxpayer whose tax case validated its use). See CRUMMEY TRUST.

• The transferor of real property, or
• A TRUSTOR.

A Decedent’s gross estate is inventoried in the relevant schedules of his/her federal estate tax return (Form 706) as follows:

• Real Estate
• Stocks and Bonds
• Mortgages, Notes, and Cash
• Insurance on the Decedent’s Life
• Jointly Owned Property
• Other Miscellaneous Property
• Transfers During Decedent‘s Life
• Powers of Appointment
• Annuities

Total Gross Estate = Sum of the Above

In some states, eg, California, a guardian is the title of the person appointed only for a minor, in which case the person appointed to care for a disabled person who has attained the age of majority is known as a conservator. Also, in some states, eg, California, a guardian or conservator may be appointed who has only limited duties that the court specifically finds are needed for the care of the ward (eg, housing or health care or management of a specific asset), in which case the appointee is known as a limited guardian or conservator.

• Specifies medical treatment the individual either desires to receive or refuses to receive, and
• Includes the appointment of another individual to make such decisions for the individual making the directive when he/she is unable to make such decisions for him/herself.

Compare: DURABLE POWER OF ATTORNEY FOR HEALTH CARE.

The use of specific words that may or may not define an ascertainable standard has resulted in much litigation. For example, the inclusion of one word, “comfort,” in a trust cost one estate over $700,000 in unnecessary estate tax. Estate of Norman H. Vissering, 96 T.C. 749 (1991). The trust could even have said “comfortable” (as in “comfortable support” — just not “comfort” alone) and that would have been OK.

• Receipt of property, generally; or, more specifically,
• Money or other property received in exchange for labor, services, the use of another’s property, or upon the sale or exchange of property.

• For probate purposes: Receipt of property from an intestate Decedent, by right of succession rather than by will.
• For community property characterization or estate tax purposes: Receipt of property simply as a result of death.

• Designed to hold one or more policies of life insurance on trustor‘s life, and
• Shelter the proceeds of the policies from estate tax:
  • At trustor‘s death and, if married at death,
  • At the later death of trustor‘s surviving spouse.

Policies may be transferred to the trust directly, or funds may be transferred sufficient for the trust itself to purchase the policies.

• On two lives, usually husband and wife, and
• That pays its proceeds on the death of the second spouse, regardless of order.

This type of policy is an ideal candidate for the source of funds to pay estate taxes at the second death and as a policy to be held by a married couple’s irrevocable life insurance trust.

• All co-owners have an equal right to use the property (as is true of all jointly held property in general); and
• All co-owners also have an equal ownership interest in the property; but
• Upon the death of any co-owner, his/her interest in the property passes to the surviving co-owners and ultimately to the last of them to survive (ie, “last one takes all”); and
• Any attempt to transfer the property during life generally will result in the joint tenancy’s being converted as a matter of law to a tenancy in common.

See: UNDIVIDED INTEREST. Compare: TENANCY BY THE ENTIRETY. Contrast: TENANCY IN COMMON.

• A list of one’s professional advisors;
• A list of one’s relatives;
• One’s preferences and arrangements regarding organ donation, autopsy, funeral, and burial;
• The location of one’s safe deposit box and any other storage facility;
• A list of one’s major current assets;
• A list of major current debts and other liabilities;
• The location of one’s recent tax returns;
• The location of one’s bills received, records of payment, and cancelled checks;
• A list of one’s legal documents;
• A description of any other relevant circumstance; and
• One’s desired disposition of tangible personal property to the extent not provided in a will or living trust.

Regarding one’s tangible personal property, many states have statutes providing for the disposition at death of some types or all of an individual’s tangible personal property (generally not including property used in a trade or business) by a writing, specifying the item and its intended beneficiary and signed and dated by its maker, that does not have to be executed with the formality required of a will. In some states (eg, Washington, see RCW 11.12.260), these informal writings are binding as regards the disposition of the specified property so long as it is not specifically given in one’s will and the will refers to the writing. In other states, these writings are discretionary with one’s personal representative.

• Joint tenancy property (but not property held as a tenancy-in-common), which passes to the surviving joint tenants;
• Joint bank accounts with right of survivorship, which pass to the surviving joint tenants;
• Payable-on-death (ie, “in trust for, ‘Totten trust‘”) bank accounts, which pass to the designated payable-on-death beneficiaries;
• Transferable-on-death securities and securities accounts, which pass to the designated transferable-on-death beneficiaries;
• Property whose title Decedent has transferred but whose possession Decedent has retained until his/her death (ie, retained life estates), which passes to the remainder beneficiaries according to the Deed or other conveyance document;
• Property Decedent has transferred to a revocable living trust for his/her benefit, which continue to be held by the trust, now for the benefit of the successor beneficiaries;
• Property subject to a community property agreement, which passes to Decedent’s surviving spouse;
• Life insurance policies on Decedent’s life, whose proceeds pass to the designated beneficiaries;
• Property held in Decedent’s individual retirement accounts, which passes to the designated beneficiaries;
• Property in Decedent’s employee benefit plans, which passes to the designated beneficiaries;

Compare: PROBATE ESTATE.

1. The authority granted by one person (the “principal“) to another (the “agent” or “attorney-in-fact”) to act for the principal. By law, the agent‘s authority terminates upon the subsequent disability or death of the principal, hence the need for a power of attorney that survives at least the principal‘s subsequent disability: a DURABLE POWER OF ATTORNEY.
2. The document in which such authority is granted.

1. A person who appoints an agent in a power of attorney; or
2. The corpus of a fund.

• “In acquiring, investing, reinvesting, exchanging, retaining, selling and managing property for the benefit of another, a fiduciary shall exercise the judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital.”

The Prudent Person Rule emphasizes caution, conservation, but most of all preservation of capital.

• Is made by a married donor during life or in the will or living trust of a Decedent married at death,
• Is established for the benefit of his/her then current or surviving U.S.-citizen spouse,
• Is the recipient of the donor‘s or Decedent‘s Q-TIP marital deduction gift, and
• Distributes, at least annually, all trust income to the then current or surviving spouse for life.

The surviving spouse’s right to income for life can be either legal or equitable. An example of a legal right to income for life would be a right of the surviving spouse to live in the family home rent free for the rest of his/her life. An example of an equitable right to income for life would be the right to all income from a trust whose assets consisted of publicly traded securities.

• Land;
• Property permanently affixed to land (eg, buildings);
• Property contained within (eg, minerals) or growing (eg, crops and trees) on land; and
• Any interest in such property (eg, a life estate or remainder).

• Payment of the attributable estate tax itself may be deferred for up to 5 years, and
• Payment of the interest on the attributable estate tax may be deferred for up to 10 years thereafter (ie, a maximum deferral period of 15 years).

• Brought to the marriage, or
• Acquired during the marriage by gift or inheritance.

Separate property is considered to be owned exclusively by its owner upon the marriage or by its donee following the marriage. The separate character of separate property is lost if separate property is commingled with community property (ie, separate property added to community property becomes community property itself). Contrast: COMMUNITY PROPERTY.

• That is established for the benefit of an individual who is eligible to receive governmental assistance, funding, or other benefits, and
• Whose creation and funding will not disqualify that individual from such eligibility.

• Disallows the beneficiary from transferring his/her interest in the trust, and
• Prevents the beneficiary‘s creditors from attaching the trust for payment of the beneficiary‘s debts.

• Has physical substance,
• Can be felt or seen, and
• Is not merely a representation of real value (ie, a document representing ownership, such as a note of indebtedness or shares of stock).

Contrast: INTANGIBLE PROPERTY.

• Each gift pays it pro-rata share, or
• The residuary estate bears all estate tax liability.

• The applicable credit amount,
• The credit for state death taxes,
• The credit for federal gift taxes,
• The credit for foreign death taxes (Schedule P of Form 706), and
• The credit for tax on prior transfers (Schedule Q of Form 706).

• Its co-owners are a married couple, and
• Upon the death of either of them, his/her interest in the property passes to the surviving spouse.

Property held in tenancy by the entirety form is analogous to community property in community property states or to joint tenancy property owned exclusively by a married couple.

• Has an equal right to use the property (as is true of all jointly held property in general), but
• May hold a different fractional interest in the property as regards ownership and transfer, and
• Has the right to transfer his/her share in the property during life and at death.

Contrast: JOINT TENANCY.

• The nature and extent of his/her assets,
• The natural objects of his/her bounty (usually, his/her family members),
• The purpose of the will, and
• Its result, namely, that he/she is directing the distribution of his/her assets on death.

1. As a noun: One who, being physically present, personally perceives a relevant object or action that has legal significance and is able to testify in court as to his/her perception; or
2. As a verb: The act of such perceiving.

See RCW 11.12.020 for the witnessing requirements for wills in Washington.