Basic estate planning definitions
Terms
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TRANSFERS OF PROPERTY
2. At death. Transfer of estate assets at death also takes place in two basic ways - (1) by probate and (2) by will substitute. In turn, each of these methods of estate transfer also operates in two ways.
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TRANSFERS OF PROPERTY
1. During life. There are really only two ways by which a person can voluntarily transfer estate assets - (1) by sale or (2) by gift.
- 5. A person who leaves a valid will is called a
- testator if male, or a testatrix if female, and is said to die testate.
- 3. By probate. Probate is the process
- of proving who is entitled to receive a decedent's assets if the decedent did not, prior to his or her death, designate a recipient in an approved will substitute form for every asset.
- 4. probate encompasses two situations that will be familiar to most clients:
- 1) the situation in which the decedent left a valid last will and testament and (2) the situation in which the decedent either did not leave a valid will or left a valid will that does not effectively dispose of all property not disposed of by will substitute.
- If there is no will at all
- total intestacy occurs. If there is a will, but the will does not effectively dispose of some assets, partial intestacy is the result
- will substitute implies, these forms of death-time transfer are meant to accomplish the same task as a will, but
- but without the stringent execution requirements for a will and without the process of administration that is required to carry out the provisions of a will.
- Thus, if a decedent has properly employed a valid will substitute form, the designation of a recipient in this form will
- prevail over a contrary designation in a will
- As previously stated, will substitutes transfer property by two methods. The first method is by the principle of right of survivorship. Two forms for titling of property use this principle
- joint tenancy with right of survivorship and tenancy by the entirety.
- When property is placed in either of these forms, each of the tenants, whether he or she realizes it or not, is stating that at death
- his or her interest in the property is to pass in equal shares to the surviving tenants.
- Property that passes by right of survivorship is said to pass by
- operation of law
- It is obvious, however, that such property is transferred as a result of some action, if not
- the conscious direction, of the (subsequently deceased) owner.
- Certain types of property pass at death by right of survivorship without any action or conscious direction of the owner. An example of such property is a stated percentage of the decedent's
- real property
- The second method of transferring property used in will substitute forms is by
- beneficiary designation.
- while the will can make this designation for any type of property, the state statutes allowing property to pass by beneficiary designation will often limit the form to certain types of property
- For example, use of a P.O.D. (payable on death) designation is often limited to bank accounts only. Similarly, a T.O.D. (transfer on death) designation is often effective for securities only. Other common examples of will substitutes that use a beneficiary designation are life insurance, pension plan benefits, a deed for real estate delivered to an independent escrow agent, and funded trusts established during the grantor's (the person who establishes and funds the trust) lifetime
- The various classifications of property that generally are used in estate planning are:
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real property—meaning land and its permanent improvements (such as a residence)
tangible personal property—meaning any property other than real property that has value because of its physical existence (such as an automobile or collectibles)
intangible personal property—meaning any property other than real property that has value because of the legal rights that it confers (such as a stock certificate or an installment note - Legal and beneficial interests. A person who has the right to manage and transfer property has a legal interest (or title) in the property. The trustee of trust property has such a legal interest. Any person who is under a fiduciary duty to manage proper
- a beneficial or equitable interest (or title).
- two subclasses of beneficial/ equitable interests, relating to when the property can be used, enjoyed, or consumed. If the beneficial owner can immediately use, possess, enjoy, or consume the property, he or she is said to have
- a present interest in the property. If the beneficial owner cannot immediately so use the property, then he or she has a future interest
- An interest that will terminate upon someone's death is known as a
- life estate
- An interest that will terminate after a precise period of time is called
- an interest for years or for a term certain
- Vested and contingent interests. The final classification of interests in property is based on how certain it is that the interest will become a reality. If the interest is certain to occur,
- it is said to be vested
- If the interest will occur only upon the happening of a contingency (other than the mere passage of time) that might or might not occur
- contingent
- A power of attorney is the name given to an independent document in which one person (known as the principal) gives authority to another person (known as the agent, or attorney-in-fact) to perform
- designated acts as the principal directs.
- power of appointment, which is almost always contained in a will or a trust, is a clause wherein the granting party
- known as the donor) gives authority to another person (known as the donee or holder) to, at the donee's discretion, transfer title to a specified portion of the donor's property to a recipient (known as an appointee
- What difference does it make whether a power of appointment is a general or special power? It makes a difference to the holder for two reasons:
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If the power is general, the holder can benefit himself or herself by exercise of the power (the good news).
If the power is general, the holder can be subject to payment of a gift tax no matter what he or she does or does not do with the power during his or her lifetime, and his or her estate can be subject to payment of estate tax at death (the bad news).