Understanding the language of estate planning is key to making informed decisions.
This glossary defines common terms you’ll encounter throughout your estate planning journey, helping you feel more confident and prepared as you create your plan using the NetLaw platform.
An advance directive, also known as a living will, is a legal document that outlines an individual’s medical care preferences in the event they become incapacitated and unable to communicate. It includes end-of-life care instructions and often names a healthcare agent.
Advanced planning refers to sophisticated strategies used in estate and tax planning for high-net-worth individuals, blended families, dynasty planning, and more. It includes tools such as trusts, family entities, and gifting strategies to minimize taxes and preserve wealth across generations.
Assets under management (AUM) represent the total market value of assets that a financial advisor or institution manages on behalf of clients. AUM is a key indicator of size, performance, and fee structures.
A beneficiary is an individual or entity designated to receive assets, benefits, or rights under a legal document such as a will, trust, or insurance policy.
A BDIT is an irrevocable trust typically set up by a family member that allows a beneficiary to control trust assets without technically owning them and be the grantor for income tax purposes, thus preserving asset protection and potential tax advantages.
A bypass trust is an estate planning tool used by married couples to preserve the federal estate tax exemption of the first spouse to die, shielding assets, and the growth of those assets, from future estate taxes.
A CLAT is a trust that provides income to a charity for a set period, after which the remaining assets pass to non-charitable beneficiaries, often heirs.
A CRAT is an irrevocable trust that pays a fixed annuity to the donor or other beneficiaries and distributes the remaining assets to a charity at the end of the term.
A CRT is a tax-exempt trust that provides income to beneficiaries for life or a term of years, with the remainder going to a charity. It includes CRATs and CRUTs.
A CRUT is a type of charitable trust that pays a variable income based on a fixed percentage of the trust’s annual value, with the remainder going to charity.
A corporate trustee is a bank or professional trust company appointed to manage a trust’s administration, investments, and distributions, ensuring fiduciary responsibilities are met.
Digital execution allows clients to sign legal documents online using secure, legally valid electronic signatures and remote notary services.
A discretionary credit shelter trust allows a trustee to determine how and when to distribute income or principal to beneficiaries, offering tax shelter and creditor protection.
A Dynasty Trust is a long-term irrevocable trust designed to preserve wealth across multiple generations while minimizing or avoiding estate, gift, and generation-skipping transfer (GST) taxes and utilized in legacy planning.
Estate planning is the process of arranging for the management and distribution of your assets during your life and after death as well as nominating an agent to make health care decisions for you, in the event you cannot make them for yourself. It typically includes wills, trusts, beneficiary designations, powers of attorney, and advance directives—and helps minimize probate, taxes, and uncertainty.
A GRAT is an irrevocable trust that allows the grantor to transfer assets and retain a fixed annuity payment for a term, with the remaining value passing to beneficiaries with minimal gift tax.
HEMS is an ascertainable standard used in trust documents to guide trustees on permissible distributions for a beneficiary’s health, education, maintenance, and support needs.
This designation appoints an individual to make healthcare decisions on someone’s behalf if they become incapacitated. It may be included within or alongside a living will.
A HIPAA authorization allows designated individuals to access a person’s protected health information, often required for healthcare agents or family members to receive updates.
A trust established by a single grantor to manage assets during their lifetime and distribute them after death. It provides control, privacy, and can help avoid probate.
An IDGT is an irrevocable trust designed to achieve estate tax savings while allowing the grantor to continue paying income taxes on the trust’s earnings. It is considered “defective” only for income tax purposes, not for estate or gift tax purposes, and is often used in conjunction with sales or gifting strategies.
An ILIT is a trust that owns a life insurance policy and keeps the proceeds outside the taxable estate, protecting them from estate taxes and potential creditors.
A trust that cannot be modified or revoked after creation, except under specific conditions. Assets placed in an irrevocable trust are removed from the grantor’s estate, offering tax and creditor protection benefits.
A single trust created by two individuals, typically spouses, to jointly manage and distribute assets. It simplifies administration and may reduce the need for separate estate plans. It can also be beneficial in a community property state to receive a double step up in basis on the assets.
An irrevocable trust designed to safeguard inherited assets over the beneficiary’s lifetime, protecting them from creditors, divorce, or mismanagement.
A business structure that provides liability protection to its owners while allowing flexible tax treatment. Often used in estate planning to hold family assets or manage investment properties.
A legal document that outlines a person’s wishes for medical care if they become unable to communicate. It typically addresses end-of-life decisions and works alongside healthcare directives.
A trust that automatically receives assets up to the estate tax exemption amount when the first spouse dies, preserving the exemption for future use by beneficiaries.
A legal authority granted in a trust or will that allows a designated person to decide how certain assets will be distributed, either among beneficiaries or future generations.
A power of attorney is a legal document designating an agent to manage your financial and/or healthcare affairs if you become incapacitated. A durable POA remains valid even if you lose mental capacity.
A specific type of power of attorney that grants an agent authority to handle financial matters such as banking, investments, and property management on behalf of the principal.
Probate is the formal court process to validate a will, settle debts, and distribute assets. It can be time-consuming and costly unless proper planning is in place. Probate is a public process.
A revocable living trust is a legal arrangement you create during your lifetime, allowing you to manage your assets as the trustee, and transfer them to beneficiaries after death—often bypassing probate.
A cybersecurity compliance standard that verifies an organization’s data security practices over a set period. It is especially important for SaaS and technology platforms handling sensitive client data.
A spendthrift provision in a trust is a clause that protects a beneficiary’s inheritance from creditors, lawsuits, and the beneficiary’s own poor financial decisions. It restricts the beneficiary’s ability to transfer or pledge their interest in the trust and prevents creditors from accessing trust assets before they are distributed.
An irrevocable trust that allows one spouse to make gifts for the benefit of the other while removing the assets from the taxable estate. It’s often used in wealth transfer strategies.
Tangible personal property refers to physical, movable items that are neither real estate nor permanently attached to land or buildings. Tangible personal property is distinct from real property and from intangible property, such as stocks, bonds, or digital assets. In estate planning, it’s often addressed through a specific memorandum or provision in a will or trust, allowing the owner to designate who receives certain personal items.
A separate written document used in conjunction with a will or trust to specify who should receive specific items of tangible personal property, such as jewelry, furniture, art, or family heirlooms. This tool provides flexibility for making personal gifts.
A legal arrangement in which a trustee holds and manages assets on behalf of beneficiaries. Trusts can be tailored to control distributions, reduce taxes, and avoid probate.
Trust administration is the process of managing and distributing the assets held in a trust according to the terms set by the trust document and in compliance with applicable state and federal laws. It typically begins upon the death or incapacity of the person who created the trust (the grantor or settlor) and is carried out by the designated trustee.
An individual or entity responsible for managing and distributing trust assets according to the terms set in the trust document. Trustees have fiduciary duties to act in the best interest of beneficiaries.
A reduction applied to the value of an interest in a business or property for gift or estate tax purposes. Common discounts include lack of marketability or minority interest discounts.
A will is a legal document outlining how a person wants their assets distributed and guardianship assigned at death. It allows naming an executor to oversee the process and may include provisions like residuary clauses.
