Estate Planning and Wealth Transfer
Expert-defined terms from the Professional Certificate in Family Office and Wealth Management course at London School of Planning and Management. Free to read, free to share, paired with a globally recognised certification pathway.
Estate Planning and Wealth Transfer Glossary #
Estate Planning and Wealth Transfer Glossary
A #
A
Asset Protection #
Asset protection refers to the strategies and techniques used to safeguard an individual's wealth and assets from potential risks such as lawsuits, creditors, or divorce. This is an essential component of estate planning to ensure that assets are preserved and passed on to future generations.
B #
B
Basis #
Basis is the value assigned to an asset for tax purposes, typically its original cost. When an individual inherits an asset, the basis is usually "stepped up" to the fair market value at the time of the decedent's death, reducing potential capital gains taxes upon sale.
C #
C
Charitable Remainder Trust (CRT) #
A Charitable Remainder Trust is a type of irrevocable trust that allows individuals to donate assets to a charitable organization while retaining an income stream for themselves or their beneficiaries. This can provide tax benefits and support a charitable cause.
D #
D
Disability Planning #
Disability planning involves making arrangements in advance to manage financial, healthcare, and personal affairs in the event of incapacitation. This may include establishing powers of attorney, healthcare directives, and trusts to ensure that a designated individual can make decisions on behalf of the incapacitated person.
E #
E
Estate #
An estate refers to all the assets, properties, and liabilities owned by an individual at the time of their death. Estate planning involves creating a plan for the distribution of these assets according to the individual's wishes and in a tax-efficient manner.
Estate Planning #
Estate planning is the process of organizing and structuring an individual's assets and affairs to ensure that they are transferred to intended beneficiaries upon death. This involves creating wills, trusts, powers of attorney, and other legal documents to minimize taxes and avoid probate.
Executor #
An executor is a person appointed in a will to carry out the wishes of the deceased individual, manage the estate, pay debts, and distribute assets to beneficiaries. The executor has a fiduciary duty to act in the best interests of the estate and its beneficiaries.
F #
F
Fiduciary #
A fiduciary is a person or entity legally obligated to act in the best interests of another party, typically a beneficiary. Fiduciaries must exercise care, loyalty, and prudence in managing assets and making decisions on behalf of the beneficiary.
G #
G
Generation #
Skipping Transfer Tax (GSTT): The Generation-Skipping Transfer Tax is a federal tax imposed on transfers of assets to individuals who are two or more generations younger than the donor, such as grandchildren. This tax is in addition to gift and estate taxes and is intended to prevent the avoidance of taxes through skipping generations.
Grantor #
A grantor is the individual who creates a trust and transfers assets into it. The grantor retains certain rights and powers over the trust, such as the ability to amend or revoke it, and may also receive income or benefits from the trust.
H #
H
Healthcare Directive #
A healthcare directive, also known as a living will or advance directive, is a legal document that specifies an individual's wishes regarding medical treatment in the event that they are unable to communicate their preferences. This document may address end-of-life care, organ donation, and other healthcare decisions.
I #
I
Inheritance Tax #
An inheritance tax is a tax imposed by some states on the value of assets inherited by beneficiaries. Unlike estate taxes, which are paid by the estate, inheritance taxes are paid by the recipient of the assets. The tax rate may vary based on the relationship between the deceased and the beneficiary.
Intestate #
Intestate refers to the situation in which a person dies without a valid will or trust in place to dictate the distribution of their assets. In this case, state laws determine how the assets are distributed among surviving family members, which may not align with the individual's wishes.
J #
J
Joint Tenancy #
Joint tenancy is a form of property ownership in which two or more individuals hold equal ownership rights to the property. When one owner dies, their share of the property automatically passes to the surviving owner(s) outside of probate.
K #
K
Key Person Insurance #
Key person insurance is a life insurance policy taken out by a business on the life of a key employee or owner to protect the business from financial losses in the event of that person's death. The policy proceeds can be used to cover expenses, recruit a replacement, or compensate for lost revenue.
L #
L
Legacy Planning #
Legacy planning involves creating a comprehensive strategy to preserve and pass on an individual's values, beliefs, and wealth to future generations. This may include philanthropic efforts, educational initiatives, and the establishment of trusts or foundations to support causes important to the individual.
M #
M
Medicaid Planning #
Medicaid planning refers to the process of structuring assets and income to qualify for Medicaid benefits to cover long-term care expenses. This may involve transferring assets to a trust, spending down assets, or converting countable assets into exempt assets.
N #
N
Net Worth #
Net worth is the total value of an individual's assets minus their liabilities. Calculating net worth is essential for understanding financial health, setting financial goals, and making informed decisions about estate planning and wealth management.
O #
O
Probate #
Probate is the legal process through which a deceased person's assets are distributed to beneficiaries and debts are settled. Assets subject to probate go through court-supervised administration, which can be time-consuming, costly, and public.
Power of Attorney #
A power of attorney is a legal document that authorizes an individual (the agent or attorney-in-fact) to act on behalf of another person (the principal) in financial, legal, or healthcare matters. Powers of attorney can be general, limited, durable, or springing, depending on the scope and duration of authority granted.
Q #
Q
Qualified Terminable Interest Property (QTIP) Trust #
A Qualified Terminable Interest Property Trust is a type of trust that allows an individual to provide income for a surviving spouse while ensuring that the remaining assets pass to designated beneficiaries, such as children, upon the spouse's death. This trust provides estate tax benefits and control over the ultimate distribution of assets.
R #
R
Revocable Living Trust #
A revocable living trust is a legal entity created during an individual's lifetime to hold assets and distribute them according to the individual's wishes upon death. Unlike a will, a revocable living trust allows assets to pass outside of probate, providing privacy, flexibility, and potential tax benefits.
S #
S
Step #
Up in Basis: A step-up in basis refers to the adjustment of the basis of an inherited asset to its fair market value at the time of the decedent's death. This can result in a lower capital gains tax liability for the beneficiary if the asset is sold for more than its stepped-up basis.
T #
T
Trust #
A trust is a legal arrangement in which a person (the grantor) transfers assets to a trustee to hold and manage for the benefit of one or more beneficiaries. Trusts can be used for estate planning, asset protection, charitable giving, and other purposes, providing flexibility, privacy, and control over the distribution of assets.
Testamentary Trust #
A testamentary trust is a trust established through a will that comes into effect upon the death of the testator. This type of trust allows the testator to specify how assets should be managed and distributed after their death, providing control over the inheritance and potential tax benefits.
U #
U
Uniform Transfers to Minors Act (UTMA) #
The Uniform Transfers to Minors Act is a law that allows adults to transfer assets to minors without the need for a trust. The custodian manages the assets until the minor reaches the age of majority, at which point the assets are transferred to the minor outright.
V #
V
Valuation #
Valuation is the process of determining the fair market value of assets for tax, financial, or legal purposes. Proper valuation is essential for estate planning, wealth transfer, charitable giving, and other transactions to ensure accurate reporting and compliance with relevant laws and regulations.
W #
W
Wealth Transfer #
Wealth transfer refers to the process of passing assets, wealth, and values from one generation to the next. This may involve estate planning, trusts, gifting, charitable giving, and other strategies to preserve wealth, minimize taxes, and support the financial well-being of future generations.
Will #
A will is a legal document that specifies how a person's assets should be distributed upon their death. Wills can also designate guardians for minor children, establish trusts, and name an executor to carry out the deceased person's wishes. It is an essential component of estate planning to ensure that assets are distributed according to the individual's intentions.