The following terms often are used in estate planning discussions:
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Fiduciary – A person having the duty to act for the benefit of another, putting the other person’s interests above the personal, private interests of the fiduciary’s. Examples of fiduciaries include: Executor of a Will; Trustee of a Trust; and Agent under a Power of Attorney.
Will – A written document, signed by you in front of witnesses and acknowledged by you to be your will. If it is admitted to probate by the proper court after your death, it will be given legal effect and the assets owned in your own name (known as the Probate Estate) will be distributed in accordance with your directions as set forth in the document.
Probate Estate – The probate estate refers to all property titled in your individual name at your death, such as real estate, stock certificates, bank accounts, and so forth. It does not include accounts with designated beneficiaries or property with a surviving joint tenant. (see Non-Probate below)
Executor – A person or corporation named in your Will who is authorized and directed to wind up your affairs at death. Your executor collects the assets, pays debts, expenses and taxes, and then distributes your property as your will directs.
Testator – A person who has signed a will. A person with a will is said to have died "testate". A person who has not executed a will is said to have died intestate.
Heir – Technically, a person who would receive some part or all of your probate estate if you died without a will and made no other effective disposition of your property. One may be a technical "heir" of a deceased person in that they receive nothing if the deceased person left a will and did not leave them any property. Illinois law specifies who is to take your property if you die without a will (Intestate). Under Illinois law, if you are not survived by a spouse or any descendants, then your heirs are your parents, siblings, and descendants of deceased siblings. If none of those persons survives you, then your heirs would be more distant relatives as specified by the statute.
Descendant – This is a child, grandchild, or a more remote offspring by blood or legal adoption.
Legatee / Devisee – A person who is given a gift of money or property under a will.
Non-probate property – includes life insurance proceeds, pension and retirement benefits if an individual, or trust, rather than your estate, is named as the beneficiary. Other non-probate property includes joint tenancy property (if the surviving joint tenant is living at your death), and property held in a trust. The disposition of non-probate property is governed by an instrument other than the will and is not handled by the executor.
Trust – An arrangement or agreement by which one person or corporation (the trustee) holds the title to property (the trust estate or trust property) for the benefit of another (the beneficiary) in a fiduciary capacity. A trust usually is in writing although some kinds of trusts may be oral. A trust may be created under a Will, or by a separate document during the Grantor’s lifetime.
Grantor, Trustor, Settlor – A person who creates a trust.
Revocable / Irrevocable Trusts – A “revocable” trust is one that the Grantor may change, amend or revoke. It can also be referred to as a “living trust.” Most trusts are revocable. A revocable trust may use the Grantor’s social security number on the trust’s accounts, and is often referred to as a “grantor trust.” All of the income on a grantor trust is reported on the Grantor’s individual income tax return. A revocable trust usually becomes irrevocable at the Grantor’s death, and at that point the successor trustee must obtain a tax identification number for the trust, and the trustee also must then start reporting the trust’s income on a separate fiduciary income tax return. Certain life insurance trusts, and other trusts created for specific tax-planning purposes may be irrevocable even during the Grantor’s lifetime.
Per stirpes – Literally, "by the roots." A gift to a person's descendants "per stirpes" divides the share a deceased parent would have taken if living: the property travels down the "roots" of the family tree until it finds living persons on whom to settle, subdividing along the way as those roots spread out. The gift is divided into as many parts as there are children and each child’s children divide their deceased parent’s share equally.
Per capita – As opposed to per stirpes, and meaning literally, "by the head." A gift to a person's descendants, "per capita," will cause all living descendants at whatever generation level to take an equal share. A great grandchild would receive the same share as a grandchild who, in turn, would receive the same share as a child.
General power of appointment – The power to direct the disposition of trust property to anyone, including yourself or your estate.
Special power of appointment – A more limited power to direct the disposition of trust property--for example, to your descendants and their spouses.
Marital Trust – A trust designed to qualify for the marital deduction from estate and gift taxes. The spouse must be the sole lifetime beneficiary. One common form of Marital Trust is a “qualified terminable interest property trust,” called a QTIP Trust. This type of trust qualifies for the marital deduction even though the spouse may have no, or very limited, control over the trust assets at death. A QTIP Trust also has special tax attributes that causes it to be a popular means of providing for a surviving spouse.
Powers of attorney - Property and Health Care – The conferring of power upon another (your agent) to act in your behalf, during your lifetime, either as to specified acts or as to everything you might do yourself. In Illinois, you can sign a power of attorney for property, and a separate power of attorney for health care decisions.
Durable power of attorney – A power of attorney which is valid and may be given effect even if you are no longer competent. All powers of attorney terminate at death although your agent under your Health Care Power may have some authority with respect to disposition of your remains.
Living will – A document by which you may tell your medical care providers not to take extraordinary measures to sustain your life if death is imminent. For a number of technical reasons, we recommend that a client not create a separate “Living Will” but that he/she incorporate provisions that are the equivalent of a Living Will into the Health Care Power of Attorney.
Some Common Ways to Title Property Interests
Tenancy in common – A form of shared ownership in which two or more persons each owns an undivided fractional part of the entire property. At the death of an owner, their interest in the property becomes part of their probate estate.
Joint tenancy – A form of shared ownership of property which, in most states, has the effect of giving complete ownership of the property to the surviving joint tenant at the death of the first to die. A deceased person's will does not control who receives joint tenancy property if his joint tenant survives him. Many people own their homes in joint tenancy with their spouse. Other types of property that may be held as joint tenants include bank and brokerage accounts, and stocks and bonds. Keep in mind that at the survivor’s death, the survivor’s will controls who will receive the joint tenancy property. Under Illinois law, if two joint tenants die simultaneously, each person’s will controls one-half of the joint tenancy property.
Tenancy by the Entirety – A form of shared ownership that can be used only by husband and wife and only with respect to real estate. It has all of the same attributes described under joint tenancy, plus, in some states, some additional protections against creditors. In an Illinois statute that became effective in 2011, a husband and wife may put title to their home into their respective trusts which then hold title as tenants by the entireties.
The information contained above is for general educational purposes only and should not be construed as legal advice for a specific situation.