Glossary of Law Terms

ADJUSTED GROSS ESTATE
The value of all property owned by a decedent (valued on the date of death), less funeral expenses, the expenses of administering the estate, and debts owed by the decedent.
ALTERNATE VALUATION DATE
A date, six months after the date of death, used to value property owned by the decedent. The alternate valuation date (sometimes known as the “AVD”) may be used for estate tax purposes in cases where the value of the estate has declined in the six months following death.
ANCILLARY PROBATE
A second Probate Court proceeding commenced in a state other than the state of the decedent’s domicile. Ancillary probate proceedings typically relate to real estate owned outside the state of the decedent’s domicile.
ANNUAL EXCLUSION
The amount (currently $10,000 per donee) which can be excluded each year in computing the gift tax of the donor. Gifts in excess of the annual exclusion are taxable gifts which reduce the Donor’s Unified Credit. Married couples may split gifts. See “Gift splitting” below.
ANNUAL GIFT TAX EXCLUSION
The amount (currently $10,000 per donee) that can be excluded each year in computing gift tax. Gifts in excess of the annual exclusion are taxable gifts that reduce the donors Unified Credit. Married couples may split gifts. See “GIFT SPLITTING”.
APPLICABLE EXCLUSION AMOUNT
The total value of lifetime taxable gifts or transfers at death that can be transferred tax-free after application of the unified credit.
BASIS
Term used in tax accounting to describe the cost of an asset for purpose of determining gain (or loss) on its sale or transfer. The starting point in calculating an owner’s basis in an asset is to determine its original cost to the owner. Basis is adjusted upward for capital improvements or downward for depreciation.
BENEFICIARY
A person who has any present or future interest, vested or contingent, under a Will, trust, retirement plan or life insurance policy.
BOND
An instrument of debt. In issuing bonds, a corporationagrees to pay holders a stated rate of interest until theprincipal is repaid on a specified date.
BY OPERATION OF LAW
The automatic change of title when one of multiple owners of property dies, such as joint tenants, P.O.D. or beneficiary designation. No court action is needed to transfer title.
BYPASS TRUST
A trust established when the first spouse in a married couple dies (also called “credit shelter” or “family” trust). It “bypasses” the estate of the second spouse for estate tax purposes.
CAPITAL GAINS TAX
A tax on the difference between the sales price and the adjusted basis of a capital asset. Long-term and short-term capital gains taxes are paid depending upon the length of time you have owned the asset.
CAPITALIZATION
The total value of a company’s bonds and preferred and common stock outstanding. The size of a company can be expressed as Small-Cap (less than one billion dollars), Mid-Cap (between one and ten billion dollars) and large-Cap (over ten billion dollars).
CERTIFIED FINANCIAL PLANNER
The designation bestowed on an individual who has completed coursework and passed an examination. A CFP certificate must be maintained by meeting State and Federal requirements.
CLOSELY HELD BUSINESS
A privately held business in which stock is not publicly traded.
COBRA
An acronym for the Consolidated Omnibus Budget Reconciliation Act. It contains provisions, which allow the surviving spouse (as well as laid off workers and a number of other eligible employees defined in the statute) of an employee to continue to be covered by the health insurance previously provided by the employer, to a maximum of 36 months, as long as the surviving spouse pays the premium cost.
COLUMBARIUM
A structure consisting of numerous compartments or niches designed to hold the urns containing cremated remains.
COMMODITIES
Investments in staples such as wheat and oranges.
COMPETENCY
SEE TESTAMENTARY CAPACITY
CONSERVATOR
A person appointed by the Court to exercise powers over the estate of a protected person. A Conservator has authority over financial matters.
CREMAINS
That which remains after a body is cremated.
CRUMMEY NOTICE
A notice sent to an irrevocable trust beneficiary to alert the beneficiary that a contribution has been made to a trust and the beneficiary has a right to obtain some or all of the contribution. Used to qualify the contribution as a “present interest” and qualify for the annual gift tax exclusion.
DEBENTURE
A bond not secured by any specific property but backed only by the general credit of the issuing company.
DISCLAIMER
A decision to not accept a gift or inheritance. Usually done for estate tax saving purposes.
DISTRIBUTABLE NET INCOME
An internal tax computation that measures the deductible portion of distributions made from trusts or estates to beneficiaries.
DIVERSIFICATION
The practice of spreading investments among a range of different securities in order to reduce risk.
DIVESTMENT
The process of transferring property to reduce your net worth in order to qualify for a means-eligible program like Medicaid.
DNI
Distributable Net Income. An internal tax computation that measures the deductible portion of distributions made from trusts or estates to beneficiaries.
DOMICILE
The permanent residence of a person or the place to which he or she intends to return even though he or she may actually reside elsewhere. A person may have more than one residence but only one domicile. The domicile of a person is important for state inheritance tax purposes and in determining the proper county to commence a probate estate.
DONEE
The recipient of a gift.
DONOR
One who makes a gift to another.
DOWER
The life estate to which every married woman is entitled upon the death of her husband. In Michigan, surviving wives are entitled to a life estate in 1/3 of all the lands of her husband, at any time during the marriage. Men do not have Dower rights.
DURABLE POWERS OF ATTORNEY
A written instrument whereby one person (the “principal”), appoints another person as his agent, with authority to perform certain acts on the principal’s behalf. Powers of attorney are usually used to give an agent power to transact personal business if the principal is unable to do so directly. The term “durable” signifies that the power being granted continues to be effective despite the disability of the principal.
EPIC
Acronym for the “Estates and Protected Individuals Code,” recently passed by the Michigan legislature which replaces the current Revised Probate Code effective April 1, 2000.
EQUITY INVESTMENT
An ownership investment in an entity. The shareholder participates in any profits or loss of the entity.
EXECUTOR
A person or entity named in the Will who has authority relating to the disposition of a decedent’s property and the payment of debts and taxes (now known as Personal Representative).
EXEMPTION EQUIVALENT
The total value of assets which may be passed tax-free after application of the Unified Credit. Full use of an individual’s $211,300 Unified Credit allows $650,000 of an individual’s estate to pass tax free. Since 1997, the proper term for Exemption Equivalent is “Applicable Exclusion Amount.”
FAMILY ALLOWANCE
A Michigan statutorily prescribed amount of a decedent’s property allocated for the support of the decedent’s widow and children during the period of estate administration.
FAMILY TRUST
A trust established when the first spouse in a married couple dies (also called “credit shelter” or “family” trust). It “bypasses” the estate of the second spouse for estate tax purposes.
FICA TAXES
Acronym for the Federal Insurance Contributions Act taxes that are withheld from workers’ paychecks to fund Social Security.
FIDUCIARY
A person or institution who manages money or property for another and who is legally required to exercise a standard of care in such management activity. Trust fiduciaries are strictly bound to implement the terms of the trust instrument under which they are appointed
FIXED INCOME INVESTMENTS
Those investments for which a company is committed to paying a specific amount of return to investors.
FTC FUNERAL RULE
Rule enacted by the Federal Trade Commission in 1982 to protect funeral consumer rights. The Rule requires funeral directors to provide funeral consumers with a general price list containing the price or price range for all services and merchandise.
GENERAL POWER OF APPOINTMENT
A power given the decedent by a third party to consume, invade or appropriate certain property in favor of the decedent, his estate or his creditors. Property over which the decedent possesses a general power of appointment at death is included in the decedent’s gross estate for estate tax purposes.
GIFT SPLITTING
A gift made by one spouse to any person other than his/her spouse where an election is made to consider the gift as having been made one-half by the donor and one-half by his/her spouse.
GRANTOR
The person by whom a grant is made; the transferor of property. The creator of a trust is usually designated as the grantor of the trust. The term “Settlor” is often used in the place of “Grantor” since the terms are synonymous. For purposes of clarity, the term “Grantor” in the Michigan Estate Planning Guide is used to describe one who establishes a Revocable Living Trust, and “Settlor” to describe one who establishes an Irrevocable Trust.
GRAT
Acronym for “Grantor Retained Annuity Trust.” A GRAT is a trust to which the donor gifts property, but retains the right to receive equal (fixed) annual payments for a number of years specified by the donor.
GROSS ESTATE
All property in which the decedent had a beneficial interest at the time of death. Examples include cash, stocks, bonds, real estate, business interests, and other tangible property.
GRUT
Acronym for “Grantor Retained Unitrust.” A GRUT is a trust to which the donor gifts property, but retains the right to receive annual payments equal to a predetermined percentage of the trust property calculated annually based on the value of the trust’s assets on the first day of the year.
GUARANTEED INVESTMENTS
Investment entities such as Money Market and Passbook accounts, Certificate of Deposits and Treasury bills, each of which pay specified rates of interest.
GUARDIAN
A person appointed by the Probate Court, designated as such in a Will, to exercise powers over the person of a minor or legally incapacitated person.
GUARDIAN AD LITEM
A special guardian appointed by the Probate Court, considered an officer of the Court, to represent the interests of an infant or incompetent person in a matter before the Court.
HEALTH CARE FINANCE ADMINISTRATION
The federal agency in charge of the Medicare program.
HEIR
Those persons, including the surviving spouse, who are entitled to the property of a decedent under the statutes of intestate succession.
HEIRS AT LAW
Those persons, including the surviving spouse, who are entitled to the property of a decedent under the statutes of intestate succession.
HOLOGRAPHIC WILL
A Will written entirely in the Testator’s handwriting (not typed) which is not witnessed (attested). Holographic Wills are valid in Michigan if signed and dated.
ILIT
Acronym for “Irrevocable Life Insurance Trust.” An ILIT is the owner and beneficiary of life insurance on the life of the Settlor. Proceeds of the policy are not included in the estate of the Settlor. An ILIT cannot be revoked or amended once created.
INCIDENTS OF OWNERSHIP
Rights a person may have in a life insurance policy such as the right to name or change the beneficiary of the policy or the right to borrow from the policy.
INCOME IN RESPECT OF A DECEDENT – IRD
Items of income earned by a decedent before death but paid to his or her estate after death. Such income is includible both in the decedent’s gross estate and in the recipient’s income. Examples of IRD include the decedent’s last paycheck, interest on U.S. savings bonds, royalties, as well as IRA, 401(k) and other retirement income paid after death.
INFLATION
An increase in the cost of consumer goods which leads to a decline of the purchasing power of the dollar.
INTESTATE
Term used to describe one who dies without leaving a valid Will.
IRD
Items of income earned by a decedent before death but paid to his or her estate after death. Such income is includible in the decedent’s gross estate and is taxable income to the recipient. Examples of IRD include the decedent’s last paycheck, interest on U.S. savings bonds, royalties, as well as IRA, 401(k) and other retirement income paid after death.
IRREVOCABLE TRUST
A Trust (see Trust definition) created during the life of the Settlor, under which the Settlor gives up the right to amend or revoke the Trust, so that once created, the Trust cannot be altered . An Irrevocable Trust established for the purpose of owning life insurance is known as an ILIT.
ISSUE
All of a person’s lineal descendants of all generations except those who are descendants of a living descendant. Typically, the term “issue” refers to the children of the person in question.
JOINT TENANCY
In Michigan, joint tenancies are generally disfavored and are never presumed. Joint tenancies must be carefully created through an express written declaration. All joint tenants hold an equal, undivided share in the property. Joint tenants enjoy rights of survivorship. If one joint tenant dies, the other joint tenants automatically succeed to his or her share. A joint tenancy can be severed, when one joint tenant conveys his or her interest to a third party.
JOINT TENANCY WITH FULL RIGHT OF SURVIVORSHIP
This type of ownership is essentially the same a Joint Tenancy, except that, the survivorship feature cannot be severed by the conveyance of one joint tenant to a third party. Instead, survivorship can only be destroyed by an act of all the joint tenants.
JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP
A form of ownership that automatically vests ownership of a deceased joint owner’s (tenant) share in the other joint tenants.
JOINT TRUST
A joint trust is a revocable grantor trust with two grantors-typically a husband and wife. Both spouses create the trust and transfer their assets to the trust. The trust normally provides that both spouses are the initial co-trustees and that the surviving spouse continues as the sole trustee, and retains the power to amend the trust after the first spouse’s death.
LAST WILL AND TESTAMENT
A legal declaration setting forth one’s desires concerning the disposition of his or her property after death.
LETTERS OF AUTHORITY
A document issued by the Probate Court giving the Personal Representative legal authority to transact the estate’s business.
LIMITED LIABILITY COMPANY (LLC)
An entity created under state law, which (like a corporation) limits the potential legal liability of its owners to the amount they have invested in the LLC. Like a partnership LLCs pays no income tax, instead items of income and loss flow through to “members” who pay tax at their marginal income tax rate.
LIMITED PARTNERSHIPS
A partnership consisting of at least one general partner who has unlimited liability and at least one limited partner who is liable for only the amount of his or her investment.
MARITAL TRUST
Trust into which trust assets in excess of the Applicable Exclusion Amount are allocated after the death of one spouse. All income and principal of the marital trust is available to the surviving spouse for her use. At death, of the surviving spouse may be permitted to designate the beneficiary of the balance of the Marital Trust (a “general power of appointment”), or may not (“QTIP” Trust).
MEDICAID
A state-run health care program for individuals with low income and little or no resources. Eligibility is determined based on state guidelines. The state also determines which health care services are covered.
MEDICARE
The federal government’s health insurance program for seniors (over the age of 65), the disabled (under age 65), and individuals of any age who have permanent kidney failure. The Health Care Finance Administration manages Medicare.
MEDIGAP INSURANCE
A private health insurance policy covering services not covered by Medicare.
MUTUAL FUNDS
Close-ended: A fund that has a relatively fixed number of shares that are bought or sold through broker/dealers on the stock exchange.Open-ended: A fund that is able to redeem or issue new shares for cash and deals directly with its investors.
NOTICE TO CREDITORS
The notice published in a legal newspaper notifying any and all potential creditors of the decedent’s death and the time frame in which they must file their claims against the estate.
NOTICE TO KNOWN CREDITORS
The notice sent directly to the decedent’s known creditors to inform them of the death and the time frame for making claims against the estate.
PAY-ON-DEATH
A type of beneficiary designation; pay-on-death (also, “P.O.D.”) accounts are payable to the named beneficiary immediate on the account owner’s death. Also known as “transfer-on-death,” or “T.O.D.” Typically used on brokerage accounts. Allows the account to pass by operation of law at the death of the primary owner to the beneficiaries named on the account. Only the owner can access the P.O.D or T.O.D. account while alive.
PER CAPITA
A system of inheritance in which an equal share is given to each person within the same generation from the decedent, without reference to right of representation (i.e. all of decedent’s grandchildren take an equal share instead of dividing their pre-deceased parent’s share among them).
PER STIRPES
Latin term to designate a system of inheritance in which children divide their deceased parent’s share of the decedent’s estate (i.e. the five grandchildren of the decedent, whose mother (the decedent’s daughter) is already deceased, divide their mother’s share of the estate among the five of them); also called “right of representation.”
PERSONAL PROPERTY MEMORANDUM
A writing indicating the individuals who are to inherit particular items of the decedent’s personal property, such as jewelry, collectibles and other family heirlooms.
PERSONAL REPRESENTATIVE
A person, or committee of individuals, or a corporate fiduciary like a bank, appointed by the probate court, to administer the probate estate of a decedent. Sometimes also known as an “executor” or “executrix.” The person named in the decedent’s Will has first priority to be appointed as personal representative. If that individual is unable or unwilling to serve, or if the decedent died without a Will, the surviving spouse has first priority.
PICK-UP TAX
A type of state inheritance tax where the state receives a portion of the federal estate tax equal to the maximum state death tax credit available on the federal estate tax return.
POSTNUPTIAL AGREEMENT
An agreement entered into after marriage concerning the division of marital assets in the event of divorce or death; the agreement overrides state law with respect to such division.
POUR OVER WILL
A Will used in conjunction with a Revocable Living Trust, which serves as a safety net to transfer probatable assets into trust at death.
PRENUPTIAL AGREEMENT
An agreement entered into before marriage concerning the division of marital assets in the event of divorce or death; the agreement overrides state law with respect to such division.
PRESENT INTEREST
To qualify for the gift tax annual exclusion, such gifts must be transfers of a present interest. To be a gift of a present interest, the donee must receive the immediate use, possession, and enjoyment of the property or the income from the property.
PROBATE
A court proceeding relating to the administration and settlement of estates, conservatorships and guardianships, as well as Will contests and matters concerning minors. Probate matters are brought before the Probate Court of the County in which the decedent or protected individual is domiciled.
PUBLICATION PERIOD
The period of time (usually four months) during which the decedent’s creditors must file their claim against the estate, or else the claim is forever barred.
QTIP TRUST
Acronym for “Qualified Terminable Interest Property” Trust. A QTIP trust qualifies for the unlimited martial deduction if the surviving spouse has the exclusive right to income and principal from the trust during his/her lifetime. The surviving spouse cannot direct the disbursement of the balance of the QTIP Trust at his or her death.
QUALIFIED PENSION AND PROFIT SHARING PLANS
Retirement plans that comply with the federal Employee Retirement Income Security Act (“ERISA”); usually employer sponsored plans. Examples include company pension, profit sharing, and 401k plans.
QUIT CLAIM DEED
A deed of conveyance intended to pass any and all title or interest which the grantor may have in the real estate. A Quit Claim Deed does not profess that such title is valid and does not warrant or convenant clear title. Unlike a Warranty Deed, the grantor under a Quit Claim Deed makes no guarantee as to the nature or extent of his or her interest in the property being transferred.
REQUIRED MINIMUM DISTRIBUTION
The minimum amount you must take annually from your retirement plan(s) beginning at age 70 ½ ; the amount is calculated by dividing your retirement plan account balance (as of the previous December 31) by the Applicable Devisor from the IRS Uniform Table that corresponds to your age. If you have more than one IRA, 403(b), 401(k) or qualified plan, all like plans must be aggregated for purposes of meeting the RMD requirement.
REVOCABLE LIVING TRUST
A Trust (see Trust definition) created during the Settlor/Grantor’s life, under which the Settlor/Grantor retains the right to amend or revoke the Trust during his or her lifetime.
REVOCABLE TRUST
A Trust (see “Trust”) created during the Settlor/Grantor’s life, under which the Settlor/Grantor retains the right to amend or revoke the Trust during his or her lifetime.
RIGHT OF REPRESENTATION
Where the issue of the deceased take or inherit the share of an estate which their immediate ancestor would have taken if living (also known as “per stirpes”).
RIGHT TO ELECT AGAINST THE WILL
A spouse’s choice of whether he or she will take under his or her deceased spouse’s Will, or under Michigan law. A surviving spouse may acquiesce to their deceased spouse’s disposition of property, or may disregard the Will and claim what the law allows. In Michigan, a spouse electing against the Will is entitled to either 1/2 of the sum or share that would have passed to the surviving spouse had the decedent died Intestate (without a Will), reduced by 1/2 of the value of all property derived from the decedent by any other means upon decedent’s death, or, a widow may elect her dower right.
ROLLOVER
A complete distribution taken from an IRA, 401k or other retirement plan which is then completely deposited into another IRA, 401k, etc.
SETTLOR
SEE: GRANTOR
SPECIAL NEEDS TRUST
A trust established for a beneficiary who is receiving means tested benefits like Medicaid or SSI, restricting transfers for the beneficiary’s primary care so as to not disqualify the beneficiary from government benefits.
SPECIFIC BEQUEST
A gift in a Will of particular items to a particular person. The gift must be of the item, not its value.
STATE DEATH TAX CREDIT
A credit allowed by the Federal estate tax for estate or inheritance tax paid to a state.
STEPPED UP BASIS
An increase in the income tax basis of property held at death. Inherited property receives an income tax basis equal to its fair market value as of the date of the decedent’s death. Items of IRD does not receive a stepped up basis.
STEPPED-UP BASIS
An increase in the income tax basis of property held at death. Inherited property receives an income tax basis equal to its fair market value as of the date of the decedent’s death.
SUCCESSOR IN INTEREST
One who follows another in the ownership or control or property.
SUCCESSOR TRUSTEE
A Trustee who follows or succeeds an earlier Trustee.
TANGIBLE INVESTMENT
Investments that have physical properties, such as gold and silver, stamps, coins and collectibles (e.g. artwork and sports memorabilia).
TAXABLE ESTATE
The gross estate less funeral and administration expenses, debts, net losses during administration, marital deduction and charitable deduction.
TAXABLE GIFTS
The total amount of gifts made during the calendar year less the marital deduction, charitable deduction, and annual exclusion(s).
TENANCY BY THE ENTIRETIES
This is a form of concurrent ownership of real property by a husband and wife, which is presumptively created when they take title to real estate as co-owners. The spouse’s must be married at the time they take ownership for a tenancy by the entireties to be created. A subsequent marriage by two co-owners of property does not automatically create this type of tenancy. Michigan is one of the minority of states that recognize this form of ownership. Unlike a joint tenant, one tenant’s interest in a tenancy by the entireties cannot be separated from the interest of the other. If the parties divorce, they become tenants in common. Upon the death of the husband or wife, title passes to the survivor by operation of law.
TENANCY BY THE ENTIRETY
A form of ownership of real property by a husband and wife, which is not recognized in all states. Unlike a joint tenant, one tenant’s interest in a tenancy by the entireties cannot be separated from the interest of the other. If the parties divorce, they become tenants in common. Upon the death of the husband or wife, title goes to the survivor by operation of law.
TENANCY IN COMMON
Under Michigan law, two or more people who hold title to real estate who are not husband and wife, are presumed to be tenants in common. Without further designation, tenants in common own an equal undivided interest in the subject real estate. Tenants in common do not enjoy the right of survivorship. Rather, the interest of a deceased tenant in common passes to that tenant’s heirs.
TERM INSURANCE
A type of life insurance policy that does not build up any cash value and whose coverage ends when its term expires or when premiums are no longer paid.
TESTAMENTARY CAPACITY
In order to execute a valid Will or trust, an individual must possess Testamentary Capacity. Testamentary Capacity is the ability to recognize important people who are the natural/deserving recipients of the Testator’s assets at the time of his or her death. To have Testamentary Capacity, an individual must be able to: 1) comprehend the nature and extent of his or her property, 2) to recall the natural objects of his or her bounty, and, 3) to determine and understand the disposition of property which he or she desires to make.
TESTATE
Term used to describe one who dies leaving a valid Will.
TESTATOR
One who makes or has made a testament or Will; one who dies leaving a Will.
TRANSFER-ON-DEATH
A type of beneficiary designation; pay-on-death (also, “P.O.D.”) accounts are payable to the named beneficiary immediate on the account owner’s death. Also known as “transfer-on-death,” or “T.O.D.” Typically used on brokerage accounts. Allows the account to pass by operation of law at the death of the primary owner to the beneficiaries named on the account. Only the owner can access the P.O.D or T.O.D. account while alive.
TRUST
A legal arrangement created under state law with three essential elements: 1) a Settlor/Grantor who establishes the Trust and who supplies the property for the Trust, 2) a Trustee who manages the property in the Trust, and 3) a Beneficiary, for whose benefit Trust property is held. Under Michigan law, a single individual may act as the Settlor, Trustee and Beneficiary.
TRUSTEE
The person appointed, or required by law, to execute or carry out the terms of a trust. A “trustee” is one who holds legal title to property for the benefit of another.
UNIFIED CREDIT
A $211,300 credit against the federal Unified Transfer Tax which allows a person to make up to $650,000 (1999) of taxable gifts during life, or at death, with no tax liability, (the Applicable Exclusion Amount).
UNIFORM PROBATE CODE
A set of laws dealing with Wills, trusts, and probate, drafted by the National Conference of Commissioners on Uniform State Laws, to serve as a model for states that want to modernize their own laws on these subjects. In Lost and Found, we have used the Uniform Probate Code as the basis of our discussion.
UNIVERSAL LIFE INSURANCE
A type of whole life insurance, that combines term insurance with a side fund invested in interest bearing instruments.
UNLIMITED MARITAL DEDUCTION
This deduction allows spouses to make unlimited gifts or unlimited transfers to each other at death. Not available if the recipient spouse is not a U.S. citizen.
VARIABLE LIFE INSURANCE
A type of whole life insurance, that combines term insurance with a side fund invested in mutual funds.
WARRANTY DEED
Deed in which grantor warrants or covenants good clear title. The usual covenants of title are warranties of seizen, quiet enjoyment, right to convey, freedom from encumbrances and defense of title as to all claims.


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Blood & Money

“Arguably the most culturally jarring theory in history, the theory of natural selection gave rise to the Darwinian revolution that changed both science and culture in ways immeasurable.”

- Michael Shermer,
Why Darwin Matters Prologue, 2006

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