ESTATE-PLANNING TERMS

Gross estate--Everything a person owns at the time of death including property transferred to a revocable trust. If the gross estate is more than $600,000, an estate tax return must be filed even if no taxes are owed.

Taxable estate--This is your gross estate (see above) less all deductions--debts, mortgages and/or the value of property passing to charity or a surviving trust. If your taxable estate is more than $600,000, you owe Uncle Sam an estate tax.

Probate Estate--Everything a person owns at the time of death, except property that has been transferred to a revocable or irrevocable Trust. If that sum is less than $600,000, no probate is required.

Real Property--Land or property permanently attached to land, such as a house.

Personal Property--Movable stuff such as furniture, automobiles, jewelry, VCRs and computers, plus intangibles such as securities.

Trust--A legal arrangement by which a person (called the trustor, settlor or grantor) transfers legal title to certain of his or her property to an individual or institution, called the trustee.

Trustee--The individual or institution that manages a trust for a third party, called the beneficiary, according to the written trust agreement. The trustee also may be a beneficiary. The trustor may act as the trustee during his or her lifetime. You can always be the trustee of your own revocable trust. You can also be the trustee of some types of irrevocable trusts, but not of others.

Irrevocable trust--A trust whose terms cannot be changed in any way. You’d better be sure of its contents before you sign on that dotted line. Such a trust is used to make gifts or transfer property.

Revocable trust--A trust whose terms can be changed or even revoked at any time by the trustor while he or she is living. Usually called a living trust.

The living trust is used as a will substitute and to avoid probate costs, which is why it has grown so popular during the past decade. Probate costs for an estate of $1 million can amount to more than $40,000 in California. The expense and length of time it takes to settle an estate--often more than a year--are considered two of probate’s major disadvantages.

Testamentary trust--This trust comes into being only after the death of the person whose will creates it. The will must be probated to the bring the trust into existence.

Will--A written document that disposes of the real and personal property in your estate. It is generally prepared and executed with the assistance of an attorney and has no legal effect until you die.

Holographic will--One that is written in a person’s own handwriting. In California, it need not be witnessed.

Formal will--One that is typed or printed, with appropriate spaces to fill in. It requires two witnesses. A will form can be obtained at an office supply store.

Pour-over will--The pour-over will is a will that leaves assets to the trustee of a pre-existing trust. It is a companion document to the living trust.

Living will--A living will is not a will at all. Rather, it’s the name given to the written directive to your physician authorizing him/her to take you off life-support systems.