Definitions of Common Estate Planning & Elder Law Terms
Advanced Directive: A document in which a person states his or her wishes regarding medical treatment in the event of mental incompetency or an inability to communicate.
Agent (Power of Attorney): An Agent, sometimes called an “attorney-in-fact” under a legal and financial power of attorney is a person you have designated to serve as your agent to manage your legal and financial affairs.
Beneficiary: A beneficiary is somebody who receives assets at your death.
Capacity: The legal competence to effectively perform a given act (e.g. to write a Will or Trust, to enter into a binding contract, etc.).
Codicil: An amendment to a will. A codicil must be executed in the same manner as a Last Will and Testament.
Community Spouse: The healthy spouse who resides in the community and does not require Medicaid services.
Cost Basis (Tax Basis): The acquisition cost of an asset. Generally, capital gain or loss for income tax purposes is measured by the difference between tax basis and selling price. See Stepped-Up Basis.
Decedent: Person who has died.
Disclaimer of interest: An election by a beneficiary to renounce their legal right to benefit from an inheritance (either under a will, trust, or through intestacy).
Elder Law: An area of legal practice that serves the needs of the elderly and the disabled as well as their family. Elder law attorneys address quality of life and independence. These needs generally include long-term medical costs, guardianship, Medicaid planning, Veterans planning, probate and estate administration, and elder abuse.
Estate: An estate is everything you own (assets) as well as enforceable debts which will be distributed to your heirs and beneficiaries when you pass away.
Estate Planning: The process of arranging one’s property and affairs to ensure their current management and ultimate disposition in the most efficient, effective, economical, and private manner, taking into consideration the effect of state and federal tax and administrative laws and regulations.
Estate Tax: A tax imposed at one’s death on the transfer of property. The federal government imposes estate tax on very large estates; some states also impose an estate tax.
Estate Tax Exemption: An estate tax rule that allows each individual to pass a certain amount of property owned at death free of estate tax; the exemption is non-transferable and must be used by the individual during life or at death, or the exemption will be lost; the exemption amount is $11,400,000 for 2019.
Fiduciary: A person who has the legal duty to act primarily for someone else’s benefit. The fiduciary is bound by a duty to act in good faith. Some examples of fiduciaries include trustees, personal representatives and agents under powers of attorney.
Gift Tax: A tax imposed on transfers of property by gift during the donor’s lifetime. Tax on gifts generally paid by the person making the gift rather than the recipient. This tax is rarely paid and only due where the person making the gift exceeds their life time exemption of over $11,400,000 dollars.
Grantor Trust: A trust, revocable or irrevocable, of which the income and capital gains are taxed to the grantor (also known as the settlor). See Settlor.
Guardian: A court-appointed individual or agency in charge of the care of a minor or incompetent person’s physical well-being and finances.
Guardianship: A court-supervised process for an individual who cannot manage his/her own affairs due to mental or physical incapacity. A Guardianship may also be called Conservatorship.
Health Care Surrogate (Health Care Proxy/Health Care Power of Attorney): A document appointing an agent to make medical decisions for you if you are unable to communicate your own medical decisions.
Heir: A person entitled to inherit all or a portion of the estate of a person who has died without a will.
Incompetent: No longer having the mental capacity to make decisions necessary to manage one’s property and personal affairs. All adults are presumed to be competent until a court has ruled otherwise.
Intestate/Intestacy: Intestate refers to dying without a legal will. Intestacy is the state of dying without a will. If a person dies without a will he is said to have “died intestate.” When a person dies without having a valid will in place, his or her property passes by what is called “intestate succession” to heirs according to state law. In other words, if you don’t have a will, the state will make one for you. All fifty states have intestate laws (or “statutes”).
Irrevocable Trust: A trust which the settlor has no power to revoke or amend.
Joint Tenancy With Rights of Survivorship (JTWROS): A type of account registration with two or more co-owners. Each owner has equal ownership with rights of survivorship. Probate proceedings are not required to transfer this account to the surviving account owner(s) upon the death of one owner.
Last Will and Testament: A legally executed document which explains how and to whom a person would like his or her property distributed after death; it becomes a public document upon your passing; a Will requires a probate proceeding to make distributions.
Life Estate: A life estate is real property that an individual has a right to occupy or use only through the duration of their lifetime. A life estate is restrictive in that it prevents the beneficiary from selling the property. Upon that beneficiary’s death, the ownership of that property may revert to the original owner, or it may pass to another person.
Living Will: A document instructing physicians, relatives, or others to refrain from the use of extraordinary measures, such as life-support, to prolong one’s life in the event of a terminal condition, an end-stage condition, or a persistent vegetative state.
Medicaid: A government-funded program that pays covered medical expenses of low-income and low asset individuals who are aged, blind, or disabled.
Medicaid Asset Protect Trust: An irrevocable trust created during the Grantor’s lifetime to hold assets in order to make them inaccessible for the expense of long-term care and nursing home costs. See Irrevocable Trust.
Per Capita: Per capita means taking “by total headcount” or “by a total number of individuals.” In the estate planning context, this means that if the beneficiaries are to share in a distribution per capita, then all of the living members of the identified group will receive an equal share. For example, if you listed three beneficiaries with a per capita designation and one of the beneficiaries predeceased you, then their share would be distributed to the remaining two beneficiaries.
Per Stirpes: Per stirpes means “by branch” or “by root.” It is one method of distributing your assets to the down to the next generations through wills and trusts, life insurance, and/or retirement accounts if the beneficiaries have died. If your beneficiary has predeceased you, with a per stirpes designation their children would receive a share of the inheritance.
Personal Representative/Executor: A person appointed in a will to collect the estate assets, pay the decedent’s outstanding debts and taxes, and ultimately distribute the assets of the estate to the beneficiaries.
Pour-Over Will: A document which allows you to nominate guardians for your minor children; also serves as a back-up device for assets not properly titled in your Revocable Trust’s name. If an asset is not properly owned by your Revocable Trust on your passing (or it is not jointly owned or does not have beneficiaries listed), your Will instructs the executor to “pour over” such assets into your Revocable Trust and distribute them in accordance with the trust terms; it becomes a public document upon your passing; a Will requires a probate proceeding to make distributions.
Power of Appointment: The authority given by one person to another to decide who will receive and enjoy an interest in property. These may be “limited” or “general” and can have significant gift and estate tax consequences.
Power of Attorney: A written instrument authorizing an agent (sometimes called the “attorney-in-fact”) to act on behalf of the person who signed the instrument (the principal) with respect to some or all legal and financial matters. The scope of powers and authority given under a particular power of attorney is spelled out in the document itself, and may be limited, or expanded, by statute in some states. Most powers of attorney are created to be “durable”, so they do not expire or terminate upon the disability of the principal. However, all power of attorney documents, and powers, terminate upon the death of the principal.
Probate: The entire process of administering and distributing a deceased person’s estate, whether by will or intestacy. Probate is typically supervised by a court and may include a determination of the validity of a will. Probate includes finding and collecting all the decedents’ assets, paying all of the decedent’s outstanding debts and other obligations, and distributing the remaining estate assets to the decedent’s heirs or beneficiaries.
Settlor (also called Grantor or Trustor): The person who creates a trust and funds the trust with his/her assets; funding occurs when assets are titled in the name of the trust.
Special Needs Trust (SNT): A trust which enables a person with a disability to maintain eligibility for government benefits [for example, Medicaid and Supplemental Security Income (SSI)]. The purpose of the trust is to enhance the quality of life for a disabled person.
Stepped-Up Basis: Assets inherited from a decedent receive a new tax basis equal to the fair market value of the asset as of date of death; i.e., the new tax basis is “stepped-up” to the date of death value. For appreciated property, the effect of the “stepped-up” basis is that the appreciation accrued from date of acquisition to the date of death completely escapes income taxation. See Cost Basis (Tax Basis).
Trust (Revocable Living [Inter Vivos] Trust): A vehicle to hold and own assets of your estate; can be revoked or terminated at any time by the settlor of the trust; preserves privacy regarding the management and distribution of your estate; allows your estate to be distributed without probate; you name successor trustees of your trust who will manage your trust if you are unable; provides clear directions for your successor trustees on how you wish your assets to be handled in event of your disability or death.
Trust Administration: The process of distributing assets of a Family Trust after the settlor’s death; the trustee of the trust manages this process; the assets owned by the decedent are valued as of date of death and valid obligations (debts, expenses, taxes, etc.) of the decedent are paid by the trustee using the decedent’s trust estate prior to distribution of assets.
Trust Protector: Someone who is appointed to watch over a trust that will be in effect for a long time to make sure the trust is not adversely affected by any changes in the law or circumstances.
Trustee: The person who manages the trust assets; typically the settlor is also the trustee of the trust during his or her lifetime; the trust document generally provides directions to the trustee on how to manage.
VA Aid & Attendance: The Aid and Attendance benefit is a monetary benefit that helps eligible veterans and their surviving spouses (or just the spouse in case of the veteran’s death) to pay for the assistance they need in everyday functioning (eating, bathing, dressing, and medication management). This monetary assistance can be used to pay for a variety of services, such as home health care, assisted living facilities or nursing home care.
Veteran’s Asset Protection Trust: An irrevocable trust created during the Grantor’s lifetime to hold assets in order to make them inaccessible for the expense of long-term care and nursing home costs. See Irrevocable Trust.