Taxable Estate: The total assets that will be taxed at your death. To calculate your taxable estate, you first determine your “gross estate,” then subtract any marital or charitable deductions.
Tenancy in Common: A way two or more people can own property together. Each can leave his or her interest upon death to beneficiaries of his choosing instead of to the other owners, as is required with joint tenancy. In some states, two people are presumed to own property as tenants in common unless they’ve agreed otherwise in writing.
Testament: Another name for a will.
Testamentary: Of or by a will. For example, a “testamentary trust” is a trust created by a will.
Testamentary Capacity: Having the mental competency to execute a Will at the time of signing. To have testamentary capacity, the testator (author of the Will) must understand the nature of making a Will, have a general idea of what he possesses, and know her immediate family members or other “natural objects of her bounty.” Inherent in that capacity is the ability to resist the pressures or domination of any person who may try to use undue influence to alter the testator’s true desire.
Testamentary Trust: The opposite of a living trust. This trust isn’t established until after you die. Your will typically includes the language to establish the trust at your death.
Testator: A person who makes a will. After making a will, the testator is “testate.” (Compare “intestate.”)
Totten Trust (“Payable on Death” (POD) account): This is a form of Trust created where one party (the settlor of the Trust) places money in a bank account or security with instructions that upon his death whatever is in that account goes to the named beneficiary. It is titled in the form “[depositor], in trust for [beneficiary].” It is not a legal Trust, but arises out of equity, as a matter of fairness.
Trust (Living Trust): Instruments used to hold legal title to and provide a mechanism to manage your property. You can select the person or persons you want (often yourself) as trustee(s) to carry out the instructions you want in the Trust. Unlike a Will, a Trust usually becomes effective immediately, continues in force during your lifetime even in the event of your incapacity, and continues after your death. Most Trusts are “revocable” which allows the person who creates them (the “settlor,” “trustor” or “donor”) to make future changes, modifications and even to terminate it altogether. If a Trust is “irrevocable,” changes, modifications and termination are very difficult, although such Trusts often carry additional tax and asset protection advantages. There are generally four categories of Trusts: express, secret, constructive and resulting. (Note: See also, Living Trust (Revocable), Living Trust (Irrevocable), A-B Trust, and A-B-C Trust)
Trust Contest: A lawsuit challenging the validity of a Trust and/or its terms. Bases for contesting a Trust include lack of capacity of trustor, undue influence of someone who uses pressure to compel the trustor to give him substantial gifts in the Trust, the existence of another Trust, challenging illegal terms or technical faults in the format or execution, such as not having been properly funded, and fraud, duress and mistake.
Trust Principal: Property that is transferred to a trust. It is also referred to as trust “corpus,” “estate,” or “res.”
Trustee: A person responsible for the administration of a trust. One to whom property is legally committed in Trust, to be applied either for the benefit of specified individuals, or for public uses; one who is entrusted with property for the benefit of another; also, a person in whose hands the effects of another are attached in a trustee process. (Note: A trustee is a fiduciary)
Trustee Duties: Trustees have certain duties (some of which are fiduciary). These include the duty to carry out express terms of the Trust instrument, the duty to defend the Trust, the duty to prudently invest Trust assets, the duty of impartiality among the beneficiaries, the duty to account for their actions and to keep the beneficiaries informed about the Trust, the duty of loyalty, the duty not to delegate, the duty not to profit, the duty not to be in a conflict of interest position and the duty to administer the Trust in the best interest of the beneficiaries. Some of these duties may be expanded or narrowed by the terms of the instrument creating the Trust, but in most cases cannot be eliminated completely. Trustees are generally held to a “prudent person” standard in regard to meeting their fiduciary responsibilities, through investment, legal, and other professionals can be held to a higher standard commensurate with their higher expertise. Trustees can be paid for their time and trouble in performing their duties.
Trustor: The person who creates a Trust by written instrument. The Trustor usually transfers the original assets into the Trust. (Note: This person is also known as the “Settlor,” and is sometimes known as the “Donor.”)
Undue Influence: The amount of pressure which one uses to force someone to execute a Will or Trust leaving assets in a particular way, to make a particular gift while alive or to sign a contract. The key element is that the influence was so great that the testator (Will), Trustor (Trust), donor (giver), or party to the contract had lost the ability to exercise his judgment and could not refuse to give in to the pressure.
Unified Credit: A lifetime credit for a portion of estate tax due on taxable estates. Everyone is allowed one unified credit of which taxable gift amounts greater than the current exclusion of $12,000.00 annually and estate taxes are taken against. In 2009, the credit for gifts is $345,800 eliminating the tax liability on a $1,000,000 while the credit for testamentary bequests is $1,455,800 or a taxable equivalent of $3,500,000.
Uniform Transfers to Minor’s Act: A statute that allows gifts to minors through a custodian for the minor. The statute replaced the Uniform Gifts to Minors Act in most states.
Unlimited Charitable Deduction: Allows anyone to bypass estate tax by gifting property to a qualified charity.
Unlimited Marital Deduction: Allows one spouse to pass an unlimited amount of assets tax-free to the other spouse in life or death (unless one spouse is not a US citizen).
Will (Last Will and Testament): An instrument used to transfer property you hold in your name to the person(s) or entity(ies) you wish to give it to upon your death. A Will also typically names someone you select as the executor to carry out your instructions and names a guardian if you have minor children. A Will only becomes effective upon your death and after it is admitted to probate. (Note: It’s also known as a “testament.”
Will Contest: A lawsuit challenging the validity of a Will. Some reasons to contest a Will include lack of testator’s capacity, undue influence by someone who uses pressure to compel the testator to replace his will.