A beneficiary is any person who gains an advantage and/or profits from something. In the financial world, a beneficiary typically refers to someone eligible to receive distributions from a trust, will, or life insurance policy.
A charitable remainder trust is an irrevocable trust designed to have certain income and estate tax benefits. A transfer is typically made by the grantor to the trust, whereafter distributions are made to the trust beneficiaries and, at the end of a term, the remainder is distributed to an eligible tax exempt entity.
In certain trusts, these are notices sent by the trustee to the beneficiaries when a gift is made to the trust. Notices must state the amount of the gift and that the beneficiaries have the right to withdraw the amount of each gift attributable to that beneficiary for a stated period after the gift is made. This process is used to satisfy IRS requirements regarding a "present interest gift" to qualify for the annual gift tax exclusion.
A document to establish or replace an existing designation of successor trustees pursuant to a trust agreement. The ability, requirements and process to adopt such a designation is governed by the trust agreement.
Often created within a trust company or a trust agreement, the Distribution Committee is typically empowered to determine how and when trust distributions should be made to beneficiaries in accordance with the terms of the applicable trust agreement.
A “do not resuscitate order,” often shortened to DNR, tells healthcare providers that you don’t want to be resuscitated in the event of an emergency. In other words, you don’t want them to perform CPR if your breathing stops or your heart stops beating. A DNR is most often adopted by people with serious health conditions.
The durable power of attorney (DPOA) designates someone - the powerholder - who can act on behalf of the party granting the power, typically with respect to most legal, property, or financial matters as specifically spelled out in the agreement in the grantor's inability to act. Some jurisdictions require a specific power of attorney to act in connection with real property. The DPOA does not cover healthcare matters, which are typically covered in a healthcare power of attorney.
A dynasty trust is a trust intended to benefit numerous generations over an extended duration. Many states have adopted trust perpetuities periods that expand on the "rule against perpetuities" which typically allowed a trust to exist for a period not to exceed "a life in being plus 21 years," and expands the perpetuities period anywhere from 90 to 1000 years. In some instances, the rule has been abolished entirely.
An estate tax return is filed with the IRS with respect to a decedent and will outline, among other things, all of the decedent's assets and liabilities which he or she owned at the date of death and their value for estate tax purposes.
An executor of an estate is an individual appointed to administer the last will and testament of a deceased person. The executor's main duty is to carry out the instructions to manage the affairs and wishes of the deceased. The executor is appointed either by the testator of the will (the individual who makes the will) or by a court, in cases wherein there was no prior appointment.
FBAR refers to Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts. US persons who have ownership or control (for example signature authority) of foreign accounts with an aggregate value of over $10,000 in the calendar year are required to file.
The generation-skipping transfer tax is a federal tax that results when there is a transfer of property by gift or inheritance to a beneficiary who is at least 37½ years younger than the donor. Generation-skipping transfer taxes serve the purpose of ensuring that taxes are paid when assets are placed in a trust, and the beneficiary receives amounts in excess of the generation-skipping estate tax credit.
The amount that can be allocated as exempt from generation skipping tax. The GST tax exemption amount, which can be applied to generation-skipping transfers (including those in trust) during 2022, is now $12.06 million, which was increased from $11.7 million. The tax rate over the exemption amount is 40 percent.
A gift tax is a federal tax paid by an individual who transfers something of value to another individual without receiving something of similar value in return. Gifts can be anything of significant value, such as large sums of money or real estate, and the tax can be imposed even if the person donating never intended it to be a gift. The Internal Revenue Service (IRS) sets limits on how much you're allowed to gift before you must file a return and before you are taxed. Sums over the annual thresholds are reportable and count toward a lifetime gift tax exemption amount. Once this generous allowance is exhausted, the gift tax becomes payable.
A gift tax return is a federal tax return that must be filed under certain conditions by the giver of a gift. The return is known as Form 709.
A grantor is an individual or other entity that creates a trust (i.e., the individual whose assets are put into the trust) regardless of whether the grantor also functions as the trustee. The grantor may also be referred to as the settlor, trustmaker, or trustor.
In a grantor retained annuity trust (GRAT), a grantor makes an irrevocable gift to a trust that is not subject to gift, generation skipping or estate tax. The trust typically makes annuity payments to the grantor and the excess value is retained in trust for the benefit of the trust's beneficiaries.
A grantor trust is typically any trust, revocable or irrevocable, which is taxed to the grantor.
The healthcare power of attorney designates someone - the powerholder - who can act on behalf of the party granting the power, with respect to most healthcare matters as specifically spelled out in the agreement in the grantor's inability to act.
HIPAA release forms allow patients to authorize their health provider to disclose information to a third party of their choosing. This can be particularly important in non-spousal situations, including parents and adult children.
An insurance trust is an irrevocable trust set up with a life insurance policy as the asset, putting the proceeds of the insurance policy outside of the insured's taxable estate. The trust is typically the owner and beneficiary of the insurance policy and the grantor typically makes gifts to the trust to pay any insurance premiums.
An irrevocable trust cannot be revoked by the grantor. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust. Irrevocable trusts are generally created to minimize estate taxes, preserve access to government benefits, and to protect assets. This is in contrast to a revocable trust, which allows the grantor to modify or revoke the trust. A revocable trust has different benefits than an irrevocable trust, like avoiding probate, and is part of any minimally viable estate planning.
The lifetime estate tax exemption is the amount of money or assets the government permits you to give away over the course of your lifetime without having to pay the federal estate tax. This limit is adjusted each year. The lifetime estate tax exemption amount increased from $11.7 million to $12.06 million this year. The estate tax rate remains 40 percent above the exemption amount. In the case of married couples, the exemption is "portable," meaning that an unused exemption at the death of one spouse can be preserved and used by the other spouse at the death of the second spouse.
A living will—also known as an advance directive—is a legal document that specifies the type of medical care that an individual does or does not want in the event they are unable to communicate their wishes.
Often created within a trust company or a trust agreement, the Power of Appointment Committee is typically empowered to exercise a power of appointment in accordance with the terms of the applicable trust agreement.
Powers of appointment are typically created and governed by the terms of a trust agreement and allow the powerholder, during their lifetime or on death, to direct the distribution of trust property in accordance with the terms of the power granted.
In a revocable trust, the grantor typically has the power to amend or revoke the trust during the grantor's lifetime. The revocable trust is an important piece of a minimally viable estate plan as it helps an estate avoid probate and directs the disposition of the grantor's estate. During lifetime, the revocable trust is effectively the alter-ego of the grantor.
A trust established for a non-charitable purpose, such as to benefit specific family members (e.g., family members with special needs), pets, maintain a cemetery, maintain an art collection or antiques, or maintain a family vacation home.
A successor trustee refers to the person(s) or institutional trustee(s) who will be responsible for administering a trust after the death, retirement, resignation or incapacity of an existing trustee.
See powers of appointment. In this case, the power is exercised on the death of the powerholder, typically by a codicil to the powerholder's Will.
The trust protector is a role created in a so-called directed trust. The trust protector’s role, in essence, is to supervise the trustee and to protect the beneficiaries.
A trustee is the person(s) or institution(s) that hold and administer property or assets in trust for the benefit of the beneficiaries of the trust.
A codicil is a legal document that acts as a supplement to your last will and testament. In it, you can make changes to your will without having to rewrite your entire original will document. Codicils are also often used to exercise a testamentary power of appointment.
A will is a legal document that spells out your wishes regarding the care of your children, as well as the distribution of your assets after your death. In a minimally viable estate plan, special bequests are made in the Will and the balance of the estate pour-over into a revocable trust for further disposition. This helps avoid probate and maintain privacy.
