Wealth    Management
Glossary of Trust Terms

Agency

A term used to describe certain types of accounts in trust institutions. The main distinguishing characteristic of an agency is that the title to the property does not pass to the trust institution but remains in the owner of the property, which is known as the principal.

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Alternative Valuation

For Federal Estate Tax Purposes, the value of the gross estate six months after the date of death. If property is distributed, sold, exchanged, or otherwise disposed of within those six months, the value of the property is determined as of the date of disposition. The election to use the alternative valuation date can only be made if the amount of Federal Estate Taxes will be reduced. The election was designed to benefit an estate that holds an asset or assets that decline materially in value during the period immediately following the decedent's death.

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Ancillary

Auxiliary or subordinate to something; used in terms such as "ancillary administration" referring to the administration of an estate or property outside of the state of residence of the decedent.

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Annual Exclusion

The amount of property that may be given annually to a donee free of gift tax.

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Beneficiary

(1) One who inherits a share or part of a deceased's estate; or
(2) one who is the recipient of an interest under a trust; or
(3) one designated as a recipient of the proceeds under a contract such as a life insurance policy or employee benefit plan.

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Bequest

A gift of personal property by Will; the same as a legacy. Bequests are classified as specific or general. A specific bequest is a gift of a designated class or kind of property; for example, a gift of the deceased's heirloom rug to a named individual. A general bequest is one that may be met from the general assets of the estate. An example would be a bequest of a sum of money without reference to any particular fund from which it is to be paid. Since a specific bequest specifies a particular item to be the subject of the gift, if that item does not exist at the time the gift is to occur, the gift fails.

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Charitable Bequest

A gift of personal property to a charity by Will.

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Charitable Devise

A gift of real property to a charity by Will.

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Charitable Lead Trust

A trust for a fixed term of years in which a charity is the beneficiary of the income and the remainder or principal at the end of the term is given to a non-charitable beneficiary. A trust for a fixed term of years in which a charity is the beneficiary of the income and the remainder or principal at the end of the term is given to a non-charitable beneficiary.

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Charitable Remainder Trust

A trust for a fixed term of the life of an individual in which the income is paid to a non-charitable beneficiary during the term and the remainder or principal passes to a legal charity upon the termination.

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Charitable Trust

A trust created for the benefit of the community, ordinarily without a definite beneficiary; as, a trust for educational purposes. The same as a public trust; opposed to a private trust.

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Codicil

An amendment or supplement to a Will. It must be executed with all the formalities of the Will itself.

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Community Property

Property acquired during marriage in which both husband and wife have an undivided one-half interest. No more than 1/2 of the community property can be disposed of by a Will. Colorado is not a community property state, however you should consult your legal advisor if you are not a Colorado resident.

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Complex Trust

A trust in which the trustee is not required to distribute income currently, or distributes amounts other than income, or makes a charitable contribution.

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Conservator

Generally, an individual or a trust institution appointed by a court to care for property; specifically, an individual or a trust institution appointed by a court to care for and manage the property of an individual unable to manage their financial affairs, in much the same way that a guardian cares for and manages the property of a ward.

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Contingent Beneficiary

The beneficiary whose interest is conditioned upon a future occurrence which may or may not take place. Unless the condition takes place, the interest is only contingent. To be distinguished from a vested beneficiary.

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Corpus

The principal or capital of an estate, as distinguished from the income.

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Crummey Power

A limited, usually noncumulative, power of withdrawal over trust property that ordinarily lapses within a specified period of time. This power gives a trust beneficiary a present interest over property transferred to a trust. Since property transferred to a trust may not otherwise create a present interest in a beneficiary, a Crummey Power is used to secure an annual exclusion for the donor of the property permitting trust management of the property for the benefit of the beneficiary as contrasted with an outright gift.

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Descendant

All persons who have descended from a common ancestor. Generally includes adopted persons when used in a Will or Trust.

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Devise

A gift of real property by Will; to be distinguished from bequest.

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Domicile

An individual’s permanent and intended home.

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Fiduciary

An individual or a trust institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them. A guardian and his ward, an agent and client, one partner and another partner, a trustee and a beneficiary all are examples of fiduciary relationships.

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"Five by Five" Power

A noncumulative general power of the donee to appoint in each calendar year the greater of $5,000 or five percent of the value of the trust at the end of the year.

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General Power of Appointment

A power to direct the disposition of property. The donee may exercise the power in favor of any person, including himself, his estate, his creditors, or the creditors of his estate. Example: “A” creates a trust in which “B” has the power to dispose of the property in favor of anyone he sees fit, including himself, his estate, and his creditors.

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Generation-Skipping Tax

A tax imposed on any generation-skipping transfer at a flat rate computed with reference to the maximum federal estate tax rate applicable at the time of the transfer. An example would be the tax applied to a gift made by a grandparent to a grandchild.

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Generation-Skipping Transfer

Any taxable distribution or taxable termination with respect to a generation skipping trust or any direct skip from a transferor.

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Gift (for Gift Tax purposes)

Property, property rights or interest transferred to another for less than adequate and full consideration in money or money’s worth.

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Gift Tax Marital Deduction

A deduction allowed for a gift made by one spouse to another. Outright gifts and life estates qualify for the deduction if the donee has the right to the income from the property for life and a general power of appointment over the principal. Certain qualified terminable interest gifts also qualify. The amount of the deduction is unlimited.

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Grantor

A person who transfers property by deed or who grants property rights by means of a trust instrument or some other document.

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Guardian

An individual or a trust institution appointed by a court to care for the property or the person (or both) of a minor or an individual unable to manage their financial affairs. When the guardian’s duties are limited to the property, he is known as a guardian of the property; when they are limited to the person, he is known as a guardian of the person; when they apply to both the property and the person, he is known merely as a guardian. In some states the term committee, conservator, curator, or tutor is used to designate one who performs substantially the same duties as a guardian.

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Guardian ad Litem

A person appointed by a court to represent and defend a minor, or an individual unable to manage their financial affairs, in connection with court proceedings; sometimes called a special guardian.

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Inter Vivos Trust (Living Trust)

A trust created during the grantor’s lifetime between living persons. It operates during the grantor’s lifetime as opposed to a testamentary trust, which does not operate until the grantor dies.

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Intestate (adj)

Not having made and left a valid Will.

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Irrevocable Trust

A trust which by its terms cannot be amended or revoked by the settlor or beneficiaries.

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Letters Testamentary

A certificate of authority to settle a particular estate issued to a personal representative by the appointed court.

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Life Interest or Life Estate

An interest that a person has in property which is enjoyed only during life. No possession of such ownership rights may be transferred during life or at death.

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Living Trust

A trust that is established by a Trust Agreement during the lifetime of the settlor. This is the same as an inter vivos trust.

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Marital Deduction

The portion of a deceased spouse’s estate that may be passed to the surviving spouse without becoming subject to Federal Estate Tax. It is unlimited (may be as much as 100 percent of the adjusted gross estate). In no event may the deduction exceed the net value of the property passing to the surviving spouse in a qualifying matter.

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Nominee

A person named for an office, position, or duty; in trust business, usually the person, firm, or corporation in whose name registered securities are held.

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Per Capita (by the head)

A term used in the distribution of property. If by a Will an estate is to be distributed equally per capita, each named individual will receive an equal share of the estate property. Compare this to the other common method of dividing property: Per Stirpes.

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Per Stirpes (by the root)

A term used in the distribution of property. If by a Will an estate is to be distributed equally per stirpes, an equal share of the estate property is given to each named family branch regardless of how many people are in each branch. Compare this to the other method of dividing property: Per Capita.

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Personal Representative

An individual or trust institution appointed in a Will to settle the estate of a person who has died. The current term used for the executor of an estate.

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Pour-over

A term referring to the transfer of property from one estate to another estate or trust, triggered by the occurrence of an event such as death. Example: Property disposed of by a Will “pours over” into an existing trust.

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Power of Attorney

A document, sometimes witnessed and acknowledged, authorizing the person named therein to act as agent, called attorney in fact, for the person signing the document. If the attorney in fact is authorized to act for his principal in all matters, he has a general power of attorney; if he has authority to do only certain specific things, he has a special power of attorney. If the authority granted in the power of attorney survives the disability of the principal, the attorney in fact has a durable power of attorney. If the authority granted in the power of attorney commences in the future only upon the occurrence of a specific event or contingency, the power of attorney is known as a springing power.

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Principal

1. One who employs an agent to act for him.
2. One who is primarily liable on an obligation.
3. The property of an estate other than the income from the property; the same as capital or corpus.

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Private Foundations

In general, all charitable foundations except those deriving substantial support from the public. They fall into two categories: private operating foundations, those where substantially all of the assets and income are used to carry on its exempt function, e.g., a museum; or private non-operating foundations, which include most family foundations.

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Probate

The process of proving the validity of a Will in court and executing its provisions under the guidance of the court. When a person dies, the Will may be filed before the proper officer of the proper court, giving the court jurisdiction in the matter of enforcing the document. This is called “filing the Will for probate.” When the Will has been filed, it is said to be “admitted to probate”. The process of probating the Will involves recognition by the court of the personal representative named in the Will (or appointment of an administrator if none has been named), the filing of proper reports and papers as required by law, determination of validity of the Will if it’s contested, and distribution and final settlement of the estate under the supervision of the court.

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Prudent Man Rule for Trust Investment

A term applied to a rule laid down by statute or by judicial decision which authorized a fiduciary to apply the standard of a prudent investor instead of selecting investments according to a list prescribed by statute or by some governmental agency under authority of law; formerly known as the American rule or the Massachusetts rule. The fiduciary is responsible for performing their duties to the standards of a “Prudent Man.”

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Qualified Terminable Interest Property (QTIP)

A terminable interest that will qualify for the marital deduction if an appropriate election is made by the donor or personal representative. In order to be QTIP property, the surviving spouse must be entitled to all of the income of the property during their life and no person, including the grantor, may have the right to appoint the property to anyone other than their spouse during the surviving spouse’s life. The major benefit of a QTIP marital trust to a grantor is that, at the surviving spouse’s death, the remaining trust property is not subject to a general power of appointment in the surviving spouse, but instead passes to beneficiaries selected by the grantor.

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Residuary Estate

The property that remains after the testator has made provision out of his net estate for specific, demonstrative, and general gifts.

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Revocable Trust

A trust which by its terms may be terminated by the settlor or by another person; opposite of an irrevocable trust.

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Settlor

A person who creates a trust, such as a living trust, to become operative during his lifetime; also called a donor, grantor, or trustor.

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Simple Trust

A term known only in tax laws to describe a trust that is required to distribute all of its income currently and that does not provide for any charitable distribution; opposite of a complex trust.

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Spendthrift Provision

A provision in a trust instrument which limits the right of the beneficiary to dispose of his interest, as by assignment, and the right of his creditors to reach it, as by attachment.

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Sprinkling or Spray Trust

A trust under which the trustee is given discretionary powers to distribute any of the income or principal among beneficiaries in equal or unequal shares.

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Tenancy in Common

Ownership of property by two or more persons so that each has an undivided interest which at the death of one is passed by Will to the deceased heir’s. (It does not pass automatically to the surviving tenants in common.)

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Testator

The person who makes a Will.

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Testamentary Trust

A trust established by the terms of the Will.

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Trust

A fiduciary relationship in which one person (the trustee) is the holder of the legal title to property (the trust property) subject to an equitable obligation (an obligation enforceable in court of equity) to keep or use the property for the benefit of another (the beneficiary).

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Trustee

An individual or a trust institution that holds the legal title to property for the benefit of someone else, who is the beneficial owner.

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Trustor

The creator of the trust, also called settlor or grantor.

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Trust Under Will

A trust created by a valid Will, to become operative only on the death of the testator; opposite of a living trust and the same as a testamentary trust.

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Will

A legally enforceable declaration of a person’s wishes regarding matters to be attended to after his death and inoperative until his death.

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