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GLOSSARY OF ESTATE PLANNING TERMS
ANNUAL EXCLUSION
An exclusion from gift taxes for gifts by each donor to each donee which is available on an annual basis. The annual exclusion is currently $11,000 per donor, per donee, per calendar year (indexed for inflation after 1998). That is, a couple with three children could give $60,000 or more per year tax free to the next generation. In order to qualify for the annual exclusion, the gift must be a "present interest" i.e., a gift available immediately to the donee as opposed to one not available until the future or one requiring the consent of some other person.
APPLICABLE CREDIT AMOUNT
The amount of the Unified Credit which is applies against the tax computed for a taxpayer's estate. See also Credit Shelter/Trust Amount.
APPLICABLE EXCLUSION AMOUNT
The amount "sheltered" from federal tax by the taxpayer's Unified Credit which increases as the Unified Credit increases. If the value of the estate is less than the Applicable Exclusion Amount for the year of death, no federal estate tax will be due. See Credit Shelter/Trust Amount for the amount of the credit and the applicable exclusion.
BENEFICIARY
A person who is, or will be, a recipient of benefits from a Will, an estate or a trust.
CREDIT SHELTER/TRUST AMOUNT
The amount of property of a decedent on which the tax is essentially paid by the unified credit; currently being increased on the following schedule:
CREDIT SHELTER/TRUST AMOUNT
The amount of property of a decedent on which the tax is essentially paid by the unified credit; currently being increased on the following schedule:
| Year |
Exclusion Amount |
Unified Credit |
| 2001 |
$ 675,000 |
$ 220,550 |
| 2002 and 2003 |
$ 1,000,000 |
$ 345,800 |
| 2004 and 2005 |
$ 1,500,000 |
$ 555,800 |
| 2006 to 2008 |
$ 2,000,000 |
$ 780,800 |
| 2009 |
$ 3,500,000 |
$ 1,455,800 |
| 2010 |
REPEALED |
|
| 2011 |
$ 1,000,000 |
$ 345,800 |
DOD A common abbreviation for date of death.
ESTATE TAX
Sometimes used synonymously with the federal estate tax. Generically, any tax which is levied upon the estate as a whole, as opposed to being levied upon the takers of the property.
FAMILY / BYPASS TRUST
A trust which contains property on which federal taxes are paid at the death of the first spouse to die and which typically is not taxed at the second death. Where the optimum marital deduction plan is used, the tax on the property in this trust is paid by the Unified Transfer Credit, so the trust is sometimes called the Credit Shelter Trust.
GIFT
A gratuitous transfer of property to someone else without receiving adequate consideration in return.
GIFT PROGRAM
Usually a planned program of making annual gifts to beneficiaries within the amount of the annual exclusion.
GRANTOR
In trust usage, the person who creates a trust (also known as trustor or settlor).
GROSS-UP, GIFT TAXES
If gifts have been made within three years of the projected year of death on which gift taxes were actually paid out of pocket, those gift taxes will be added back to the value of the estate for purposes of computing federal estate taxes. This is called the gift tax gross up.
INCOME BENEFICIARY
The person who will receive the income from a trust for a specified period of time (e.g., the beneficiary's life). See also, Remaindermen.
INHERITANCE TAX
Any death tax which is levied by a non-federal government (e.g. a state) upon the takers of the property as opposed to the estate as a whole (see estate tax).
INTERVIVOS TRUST
A trust created by agreement currently, as opposed to a testamentary trust created by a Will. Such a trust can be used to hold assets during a person's lifetime and thereby remove those assets from probate at the person's death. Also sometimes called a "living trust".
JOINT AND SURVIVOR ANNUITY
This is an annuity payable to two people (e.g. a husband and wife) through the lifetime of the survivor of the two of them. For qualified plans, this is the type of distribution mandated by law, unless both spouses consent to a different form of payment.
LIFE INSURANCE GIFT VALUE
The value of a life insurance policy which is given to someone else normally is its interpolated terminal reserve value, which is generally very close to the cash surrender value. In most cases, this gift value will be less than the face value of the policy. Where the insured is in bad health and could not obtain new insurance within normal cost limits, the gift value of the policy may be greater.
LUMP SUM GIFT
Typically a gift which is made on a one-time basis only, as opposed to a gift program which is designed to use the annual exclusion on a yearly basis.
MARGINAL ESTATE TAX RATE
The tax rate at which the top dollars in an estate are taxed.
MARITAL DEDUCTION
A deduction allowed on the federal estate tax return (Form 706) for property passing in a qualifying manner to a surviving spouse. Prior to 1981, there was a maximum limit of marital deduction which could be taken. This maximum was the greater of one-half of the decedent's separate property, or $250,000. From 1982 on, the marital deduction was allowed without limit for any qualifying property (essentially property which provided the surviving spouse with a fee interest in the asset). For an exception, see Qualified Terminable Interest Property.
MINIMUM DISTRIBUTIONS
In retirement planning, a participant is required to begin making withdrawals from his or her retirement plans in the year after he or she reaches age 70-1/2. These withdrawals must meet certain minimum distribution requirements, based on the payout election the participant makes at that time. In general, the participant must withdraw the funds over his or her life expectancy (if not more rapidly).
NET TAX
Generally the actual amount of tax which is payable in a given situation, after all deductions, credits and other adjustments have been made.
OPTIMUM MARITAL DEDUCTION
The technique by which only that amount of a decedent's estate not "sheltered" by the decedent's unified credit passes under the marital deduction to the surviving spouse.
PICKUP STATE
A state which does not impose an estate tax or an inheritance tax, but does "pick up" an amount equal to the federal state death tax credit.
PROBATE
The process by which assets in the name of a decedent are legally transferred to the decedent's rightful heirs or beneficiaries.
QTIP TRUST (QUALIFIED TERMINABLE INTEREST PROPERTY)
Although most limited or terminable interests in property (such as life estates) do not qualify for the marital deduction, in 1981 laws were enacted to allow a marital deduction for such interests if all of the income were payable to the surviving spouse in all events during the survivor's lifetime. This type of property is known as Qualified Terminable Interest Property.
REMAINDERMEN (PERSONS)
The persons who will receive the benefit from a trust after the death of the income beneficiary(ies).
REQUIRED BEGINNING DATE (RBD)
This is the date on which a retirement plan participant is required to begin making distributions from his or her retirement plan(s), and is April 1st of the year following the year the participant reaches age 70-1/2.
ROLLOVER (SEE SPOUSAL ROLLOVER)
SEPARATE PROPERTY
A person's earnings while residing in a separate property state or prior to marriage in a community property state, and the assets acquired with those funds. Also, in separate property jurisdictions and most community property jurisdictions, property received by inheritance, gift or personal injury settlement or award, together with income generated therefrom.
SPOUSAL ROLLOVER
Where retirement plans and IRAs are payable to a surviving spouse, the survivor will have an option to "roll over" the funds into his or her own IRA, thereby deferring the income tax on the plan funds.
SURVIVOR
Usually referring to the surviving spouse in a husband and wife couple.
TENTATIVE TAX
The gross value of the federal estate tax prior to application of the Unified Credit and the credit for gift taxes paid after 1976 (and any other applicable credits).
TRUST
A legal entity which is generally used instead of giving property outright to a beneficiary, either to permit tax avoidance or deferral (as in a marital deduction or generation skipping trust) or to provide investment guidance or protection for the beneficiaries, particularly minor or younger children.
UNIFIED CREDIT
A credit applicable against federal gift and/or estate taxes. The Unified Credit has been at varying levels since 1976, but reached a level of $192,800 for 2002 - 2003. The Credit is increasing again between 2004 and 2009 (see Credit Shelter Trust Amount).
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