Trust, Estate and Tax Planning Glossary

Patti S. Spencer, Esq., is a nationally recognized Trust & Estates attorney who is the author of many publications and articles on estate planning topics. Since many estate planning terms come from English common law concepts and the Internal Revenue Code, the Spencer Law Firm LLC offers a glossary to help you understand key trust and estate terms.

To request a complimentary copy of the complete Glossary, contact us. Include your mailing address and we will send you a copy.

Here are some examples of terms that are included in the Glossary:

Annual Exclusion Gifts. Any person can make an unlimited number of gifts up to $14,000 per recipient per year with no gift tax payable and no gift tax return filing requirement. These are called annual exclusion gifts because they can be made every year, and they are excluded from any reporting requirement. The amount of $14,000 is not the amount of gift you are “allowed” to make. You may make gifts of any amount you want. If the gift exceeds $14,000 to any given individual in a calendar year, the fact that you made the gift must be reported on a gift tax return. When lifetime gifts in excess of the annual exclusion exceed $5.25 million, then there will be gift tax due.

Estate Administration. The process by which a decedent’s estate is settled including collection and valuing of assets, notification of creditors, determination of debts and liabilities, filing and payment of all inheritance, estate taxes, preparation of decedent’s final income tax return and fiduciary income tax returns for the estate, selling assets as appropriate, and, in general, carrying out the terms of the will.

Heirs. A decedent’s heirs are those persons who would inherit his or her property if he or she died without a will. A living person has no heirs. Heirs presumptive are those who would inherit if a living person were to die immediately.

Inheritance Tax. A tax on the receipt of property by a beneficiary as a result of the death of the decedent. Pennsylvania has an inheritance tax. There is no exemption; the first $1.00 is taxable. For property received by a surviving spouse the rate is zero, thus no tax. For property passing to children, grandchildren, mother, father, grandmother, grandfather, wife or widow of a child, husband or widower of a child, the rate is 4 1/2%. Lineal descendants include children and more remote descendants. Children includes stepchildren and adopted children. For property passing to siblings the rate is 12%. For property passing to all others, the rate is 15%. The inheritance tax does not apply to the proceeds of life insurance (in any amount) on the life of the decedent. Property passing to a qualifying charity is exempt from the application of the inheritance tax. The tax must be paid within nine (9) months of the decedent’s death. If the tax is paid within three months of the date of death, there is a five percent discount available for early payment.

Per Stirpes is the method of dividing an estate where a group of beneficiaries take the share which their deceased ancestor would have been entitled to, had he or she lived. Per stirpes means by the stocks or by the roots. The group of beneficiaries take by their right of representing the ancestor and not because they are owed anything as individuals. Example: Grandmother had two sons; one of them had one child, and the other had three. Both of the sons predeceased Grandmother. A per stirpes distribution of her estate would be that the grandchild who is the only child of a deceased son gets one-half (½) of the estate and the other three grandchildren share the other deceased son’s one-half share, each receiving one-sixth (1/6). Division is calculated at the first generation regardless of whether there is a surviving member of that generation.

Property – Real, Personal, Tangible. Real property is land and anything that is erected or growing upon or affixed to the land. Personal property is everything that is subject to ownership other than real property, for example, stocks and bonds, and bank accounts. Tangible personal property is a subset of personal property and consists of movables such as animals, furniture, jewelry, vehicles, china, etc.

Special Needs Trust If a person who is disabled inherits more than $2,000 it will interrupt his or her government benefits. Many parents and grandparents who wish to leave money for the benefit of a disabled child do so using a Special Needs Trust. Government benefits will not be terminated, and the trustee can use the trust funds for supplemental needs, things like vacations, social events, and sporting goods. If Medicaid won’t cover certain medical care or treatments, the trust can step in and pay for those. The trust can buy a house for the child to live in, or it can pay for an advocate to insist that the child be granted services by the government.