Traditional Estate Planning terms:
Will – A legal declaration by which a person, the testator, names one or more persons to manage the estate and provides for the transfer of property at death. Texas has a simplified probate process, but precise language is required in the Will to take full advantage of the system.
Revocable Living Trust – A trust designed to transfer property at death while avoiding probate proceedings. This strategy is also used to reduce taxes, safeguard financial privacy, and to regulate the use of assets if the owner becomes incapacitated.
Multi-Generational / Dynasty Trust – An estate planning tool that offers tremendous estate tax and other transfer tax advantages as well as significant asset protection for beneficiaries for multiple generations.
Irrevocable Gifting Trust – An irrevocable trust specifically structured to receive gifts for the benefit of descendants or others. Once the asset is gifted to the trust, the asset and the asset growth are generally not included in the grantor’s estate for estate tax purposes.
Irrevocable Life Insurance Trust (ILIT) – A trust that owns one’s life insurance policy, pays the premiums, and gives the death benefit to the beneficiaries when the insured dies. By placing ownership of the policy with a trust, and not the insured, it removes the death benefit from the insured’s estate.
Charitable Planning – Creation of sophisticated trusts, formation of not for profit entities, and donations of money or goods to charities that can fulfill one’s charitable goals while resulting in tax savings for the donors.
Sophisticated Estate Planning terms:
Charitable Lead Trusts (CLAT and CLUT) – A trust designed to make annual payments to a designated charity, and after the stated trust term or the grantor’s death the remaining trust property, including any growth, is transferred to non-charitable beneficiaries (typically the donor’s descendants), free of transfer taxes.
Charitable Remainder Trusts (CRAT and CRUT) – A trust created whereby property or money is donated to a charity, while the donor continues to receive income from the trust while living or for a specified term. The grantor may defer income tax on the contributed assets, and may receive an income tax deduction for the fair market value of the remainder interest.
Grantor Retained Annuity Trust (GRAT) – An estate planning tool commonly used to transfer significant wealth to family members with little or no gift tax exposure.
Qualified Personal Residence Trust (QPRT) – An estate planning tool whereby a grantor places a residence in a trust either for the benefit of a spouse or children and retains the use of the property for a specific number of years. Upon the expiration of the term, the residence transfers to the remainder beneficiaries free of transfer taxes.
Grantor Trust – A trust that owns assets that are treated as owned by the grantor for federal income tax purposes. Because the grantor is treated as the owner of the assets in the trust, the grantor continues to pay the income tax associated with the trust property while the trust property (which is out of the grantor’s estate) continues to grow.
Sale to Grantor Trust – A transfer tool structured to “freeze” the value of an asset in the grantor’s estate by selling the asset to a trust (typically an irrevocable gifting trust for descendants). If the asset has income or appreciation in excess of the interest rate on the note, the excess income and appreciation is transferred tax free to the trust.
Self-Settled Trust – Also known as an Asset Protection Trust (APT), a self-settled trust is a trust created for one’s own benefit, typically for the purposes of estate tax reduction or creditor protection.
Business Succession Planning – Planning relating to the smooth transition of ownership and management of an operating business.
Judicial and Non-Judicial Trust Modification or Termination – Judicial or non-judicial procedures whereby an otherwise irrevocable trust may be modified or even terminated to accomplish certain tax, distribution, investment, or management objectives which may not have been applicable or foreseeable upon the creation of the trust.
Incompetency Planning terms:
Living Will / Directive to Physicians – A legal document that a person uses to make known his or her wishes regarding life-prolonging medical treatments. It is also referred to as an advance directive, health care directive, or a physician’s directive.
Medical Power of Attorney – A document, signed by a competent adult, designating another person – called an agent – to make health care decisions on his or her behalf should he or she become unable to make such decisions.
Durable Power of Attorney – A document that allows an individual (the principal) to give authority to another person – the agent or attorney in fact – to make financial and legal decisions on the principal’s behalf.
HIPAA Release – A form that a patient signs stating that his or her confidential medical information can be given to someone else, typically the agent under the Medical Power of Attorney.
Guardianship – A formal court proceeding that grants a court-appointed individual or entity the authority to make decisions for an incapacitated individual or a minor.