Glossary

A/B Trust – A type of revocable living trust used by married couples as a strategy to reduce or avoid taxes. Upon the death of the first spouse, two trusts (trust A and B) are created. By dividing the couple’s estate into two trusts at the first death, each spouse can pass the maximum amount of property allowed to avoid federal estate taxes. When the surviving spouse dies, the property passes to the beneficiaries and is not considered part of the second spouse’s estate. Trust A is often referred to as the marital deduction trust, and Trust B is often referred to as the credit shelter trust or the family trust or the bypass trust.

Accumulation Trust – A trust where the income is retained and may only be distributed to the trust beneficiaries, or accumulated, in the discretion of the trustee. To the extent that income is distributed to the beneficiaries, the income is taxed to them. If income is retained in the trust, it is taxed to the trust as a separate taxpayer. Depending upon the discretion given the trustee by the controlling instrument, principal may or may not be distributed to beneficiaries. This is also known as a complex trust.

Ademption – The failure of a gift because it is no longer owned by the testator at the time of death.

Administrator - The person or financial institution designated by the court to manage and distribute the estate of a person who died without a will.

Adult – In Maine, a person over the age of 18.

Affidavit – A sworn, written statement executed under oath, often before a notary public.

Affidavit of Domicile – A sworn, written statement verifying the city, county and state of a person’s residence.

Advance Health Care Directive – A legal document, which provides a person both with the opportunity to state one’s wishes about medical treatment and life prolonging procedures and to grant another person the right and authority to handle matters related to the health care of the principal.

Ancillary Probate – A probate proceeding conducted in a state other than where the decedent lived at the time of death and the primary probate occurred. This is usually necessary if the decedent owned property in another state.
 

Annual Exclusion Amount – The amount of property the IRS allows a person to gift to another in a calendar year before a gift tax is assessed and/ or a gift tax return must be filed. For 2006, the annual exclusion is $12,000. Therefore, up to $12,000 can be given to any number of people in 2006 and none of the gifts will be taxable. To qualify for the annual exclusion, the gift must be one over which the donee has full control and can enjoy immediately.
 

Ante-nuptial Agreement – A contract between two potential marriage partners specifying how the property owned by each partner prior to marriage and owned either individually or jointly during marriage will be divided in the event of a divorce.
 

Ascertainable Standard – The phrase is generally used to define the limitation on the trustee’s access to the B trust (see A/B Trust) that is necessary to protect the trust corpus for estate tax purposes. Access to principal for the "health, education, maintenance and support" (HEMS) of the surviving spouse and children is acceptable to the IRS.
 

Assets – Items of value, including cash, stocks, bonds, business interests, insurance proceeds, jewelry, art, antiques, and real estate. The general term “property” is used in the Maine Probate Code.
 

Asset Protection – The process of organizing assets in advance to guard against legal problems, taxes, and other risks to which the assets would otherwise be subject, usually involving transfers from an unprotected form of ownership (e.g., direct individual ownership) to a different type of ownership or asset using an asset protection vehicle (e.g. trusts, business entities, family limited partnerships).
 

Attorney in Fact – A person named in a Power of Attorney to act on behalf of the Principal, the person who signs the document and gives the power to act to another.
 

Basis – The value of an asset used to determine capital gains and capital losses for tax purposes. For a purchased asset, the tax basis is the amount paid plus expenses. If the asset was inherited, the donee receives a step up in basis, which is the fair market value of the stock on the date of the original owner’s death. If received as a gift, the donee receives the carryover basis, which is the amount that was originally paid for the asset unless the market value on the date of the asset on the date the gift was made was lower.
 

Beneficiary - A person or entity entitled to receive income or assets, as the result of being named in a will, trust, life insurance policy or on a retirement account. In the Maine Probate Code, a trust beneficiary is “a person who has any present or future interest, vested or contingent, and also includes the owner of an interest by assignment or other transfer and as it relates to a charitable trust, includes any person entitled to enforce the trust.”
 

Bequest – See devise.
 

Bond - An insurance policy used to ensure against the misuse of funds under the control of a fiduciary like a Conservator, a Trustee or a Personal Representative. The bond guarantees that a certain amount of money will be paid if a party is injured due to acts of the fiduciary.
 

Carryover Basis – See Basis.
 

Charitable Remainder Trust – A trust used to make large donations of money or property to a charity so that the donor can obtain income and estate tax savings.
 

Child – As defined by the Maine Probate Code, a child includes any individual entitled to take as a child under Maine’s intestacy law, including biological and adopted children but not including stepchildren, foster children, and grandchildren or more remote descendants.

Claim – With respect to the estate of a decedent or a protected person, claims are defined in the Maine Probate Code to include liabilities “whether arising in contract, in tort or otherwise, and liabilities of the estate which arise at or after the death of the decedent or after the appointment of a conservator, including funeral expenses and expenses of administration. The term does not include estate or inheritance taxes, or demands or disputes regarding title of a decedent or protected person to specific assets alleged to be included in the estate.”
 

Codicil – A written change or amendment to a Will.
 

Complex Trust – See Accumulation Trust.
 

Conservator – An individual or entity appointed by the Maine Probate Court to be responsible for and manage the income and assets of a minor child or an incapacitated individual, called the protected person. In some states, the conservator is called the “guardian of the estate.”
 

Corpus of a trust - Term used to designate the body of assets (property) placed in trust. The trust holds title to all property included in the corpus.
 

Death taxes – Taxes levied on the property of a deceased person based on the value of the property left behind. Federal taxes are generally called estate taxes. Some states impose inheritance taxes on the person who receives the property.
 

Debtor – A person who owes money.
 

Decedent – The person who has died.
 

Deed – A written document evidencing the ownership or transfer of real estate.
 

Devise - When used as a noun means a testamentary disposition of real or personal property and often used interchangeably with gift, bequest, legacy and inheritance. As a verb, “devise” means to dispose of real or personal property by will. “Devisee" means any person designated in a will to receive a devise.
 

Disability – For the purposes of SSDI and SSI, an individual is disabled if he or she "is unable to engage in any substantial gainful activity" by reason of a medically determinable physical or mental impairment that is expected to result in death or has lasted or can be expected to last for a continuous period of at least 12 months. Children under the age of 18 are considered to be disabled if they suffer from a physical or mental impairment of comparable duration and severity.
 

Disclaimer – Also called renunciation, this is the refusal of a beneficiary to accept property that would otherwise pass to him or her under a decedent’s will or by intestacy. When a disclaimer is made, the property is usually transferred to the person next in line under the will.
 

Disinherit – Omitting from an estate plan an individual who would otherwise have been an heir.
 

Distributee – Under the Maine Probate Code, any person who has received property of a decedent from the personal representative, other than as a creditor or a purchaser.
 

Domestic partnership – Unmarried adults who are domiciled together under long-term arrangements that evidence a commitment to remain responsible indefinitely for each other's welfare. Maine established the Domestic Partner Registry in 2004 which accords a legal status similar to that of a married person with respect to matters of probate, guardianships, conservatorships, inheritance, protection from abuse, and related matters.
 

Domicile – A person’s legal residence usually evidenced by where he or she maintains the most important family, social, economic, political and religious ties. A person can have multiple residences but only one domicile. The individual cannot choose to make his home in one place for the general purposes of life and in another for tax purposes.
 

Donee – The recipient of a gift.
 

Donor – A person who makes a gift.
 

Durable Power of Attorney – A power of attorney that remains in effect even if the person giving the power, known as the principal, becomes incapacitated. If the document is not specifically made durable, the power of attorney expires when the principal becomes incapacitated.
 

Estate – All the property a person owns when he dies. Under the Maine Probate Code, Estate “includes the property of the decedent, trust, or other person whose affairs are subject to this Code as originally constituted and as it exists from time to time during administration.”
 

Executor or Executrix - A person named in the decedent's will to serve as personal representative in probating the decedent's estate. The designated person may decline to serve as personal representative.
 

Fair Market Value - The market price for an asset as would be agreed to between a willing buyer and a willing seller.
 

Fiduciary - A person or institution legally responsible for the management, investment and distributions of funds for another. Under Maine law, the term includes personal representatives, guardians, conservators and trustees.
 

Gift - A transfer of property without receiving a benefit or payment in return.
 

Gift Taxes – Federal taxes imposed on gifts. See Annual Exclusion Amount.
 

Grantor - The person who establishes a trust and transfers assets into it. This term is also known as settlor or trustor.
 

Gross Estate – The total value of an estate without regard to any debts or liens against the property or the cost of probate.
 

Guarantor – A person who agrees to answer for the payment of another’s debt.
 

Guardian - The Maine Probate Code defines Guardian as “a person who has qualified as a guardian of a minor or incapacitated person pursuant to testamentary or court appointment, but excludes one who is merely a guardian ad litem.”
 

Heir – A person who receives property from a deceased relative who died without a will or trust. Modern usage includes anyone who receives property from a decedent through any means. The Maine Probate Code defines this term as “those persons, including a spouse, who are entitled to under the statutes of intestate succession to the property of a decedent.”
 

Holographic Will – A handwritten will. In Maine a handwritten will is recognized as valid, whether or not witnessed, as long as the material provisions and the signature are in the handwriting of the testator.
 

Incapacitated Person – In Maine, this is a person who is impaired by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, or other cause except minority to the extent that the person lacks sufficient understanding of capacity to make or communicate reasonable decisions concerning his person.
 

Inherit – To take or receive property by legal right from a deceased person.
 

Insurance Trust – An irrevocable trust used to hold insurance and pass it to a person’s heirs without estate taxes being imposed on the death benefits of the policy, provided that the trust is established properly, managed properly, and the insured does not retain any incidents of ownership.
 

Interested person – In Maine this term includes heirs, devisees, children, spouses, domestic partners, creditors, beneficiaries and any others having a property right in or claim against a trust estate or the estate of a decedent, ward or protected person that may be affected by the proceeding.
 

Intestate – To die without a will.
 

Intestate Succession – The method by which a person’s estate is distributed when the property is not disposed of by will, through joint ownership or other probate avoidance techniques.
 

Irrevocable Trust - A trust that once created cannot be changed, amended or revoked.
 

Issue – A term meaning all children and grandchildren or lineal descendants down through the generations.
 

Joint Tenancy – A form of joint ownership by two or more people in which each person has an equal undivided ownership interest that passes to the surviving joint tenant(s) upon the death of any joint tenant. Real estate held in joint tenancy does not pass through probate.
 

Letters Testamentary – A formal court order issued by the probate court giving the personal representative authority to administer the estate.
 

Life Estate – The right to have all the benefits from a property during a person’s lifetime without owning the property. When the person with the right dies, the property is not included in the person’s estate.
 

Living Trust – A type of living trust used to avoid probate. It is established during the life of the grantor who retains the right to the income and principal while living and then the property passes directly to the beneficiaries without court involvement upon the death of the grantor. The trust is revocable during the life of the grantor and becomes irrevocable upon the grantor’s death.
 

Living Will – A document which states a person’s wishes regarding medical treatment and life prolonging procedures. It is more limited than an Advanced Health Care Directive.
 

Marital Deduction – The unlimited deduction allowed under federal estate tax law for all qualifying property passing from the estate of the deceased spouse to the surviving spouse. This deduction allows anyone to pass their entire estate to their spouse without tax consequences.
 

Marital Deduction Trust - The trust which "receives" the property passed under the marital deduction laws, from the deceased spouse's estate to the surviving spouse. Property in the marital deduction trust will be included as part of the surviving spouse's estate (for estate tax purposes) when he or she dies.
 

Minor - A child who is not old enough to have the legal capacity to govern his or her own affairs. In Maine, a child under age 18 is a minor.
 

Mortgage – A conveyance, arrangement or agreement by which property is used as security.
Net Taxable Estate - The value of an estate upon which the federal estate tax is levied. The net taxable estate or "net value" is the total or "gross value" of the estate less liabilities, expenses and other deductions allowed by the tax laws.
 

Notice - The legally prescribed process of making someone aware of a legal proceeding or matter.
 

Notarized - The affirmation of an agent (the notary) of the state affirming that the signature on the document being "notarized" is in fact the signature of the person purportedly signing the document.
 

Notary - A person who has state granted authority to certify the validity or authenticity of the signature being made on a document.
 

Oath – A form of attestation by which a person states that he will perform an act faithfully and truthfully.
Partition - The judicial separation of the respective interests in property of joint owners or tenants in common so each may take possession, enjoy, and control his or her share of the property.

Per Capita - A method of distributing an estate such that all of the surviving descendants share equally in the property. Also know as Pro Rata.
 

Per Stirpes – A common method of distributing an estate such that if one of the children is dead, his or her children share equally in his or her share. Also known as By Right of Representation.
 

Person – The Maine Probate Code defines person as “ an individual, a corporation, an organization, or other legal entity.”
 

Personal Letter – This is a letter referenced in a person’s will providing instruction to the personal representative regarding distribution of tangible personal property or personal items.
 

Personal Property - Property other than real estate (land and permanent structures on the land). Cars, furniture, securities, bank accounts, and animals are examples of personal property.
 

Personal Representative – In Maine, this term includes the executor or executrix, administrator, successor personal representative, special administrator, and persons who perform substantially the same function.
 

Petition – In Maine, this is a written request to the court for an order after notice to all interested parties.
 

POD Account - A bank account that is designed to avoid probate. It is a contract between the bank and the account holder guaranteeing that, upon the account holder's death, the bank will pay the balance of the account to whoever is designated to receive the account.
 

Pour-over Trust - A trust designed to receive property that is "poured over" into it. The property is usually "poured over" or received from a pour-over will through the probate process.
 

Pour-over Will - A will which contains a clause that transfers some or all of the assets that pass through the will into a trust for final distribution from the trust. The will's assets are said to "pour over" into the trust.
 

Power of Appointment - The power given to a person, by appointment in a will or a trust, to distribute the property that passes through the will or trust at the discretion of the person appointed. Other than to give the appointed person the authority to make the distribution, the will or trust does not make distribution of the property.
 

Power of Attorney - A document established by an individual (the principal) granting another person (the agent) the right and authority to handle the financial affairs for the principal. A power of attorney becomes invalid at the death or incompetency of the principal, unless the power of attorney is a "durable power of attorney" which remains in effect after the principal becomes incompetent.
 

Prenuptial Agreement - A contract between two potential marriage partners specifying how the property owned by each prior to marriage and owned individually or jointly during marriage will be divided should the couple divorce.
 

Primary Beneficiary - The person or persons for whose benefit a trust is originally established. When conditions change and the primary beneficiaries are no longer in a position to receive the benefit of the trust, the benefit goes to the "secondary beneficiaries."
 

Probate - The legal process following a person’s death which includes proving the authenticity of the deceased person’s will, identifying a person to handle the deceased’s affairs, identifying and inventorying the deceased’s property, identifying heirs and distributing the person’s property either by will or if no will then in accordance with state law, and paying debts and taxes.
 

Probate Court – A specialized court within the state system dedicated to handling probate matters, which includes settlement of intestate and testate estates, adoptions, appointment of guardians, name changes, and other matters.
 

Probate Estate - A deceased person's property, which is subject to the probate process.
 

Property – Real and personal property, and any interest therein, that may be the subject of ownership.
 

Protected Person – In Maine, this is generally a minor or other person for whom a conservator has been appointed.
 

QTIP Trust - A Qualified Terminable Interest Trust (QTip) is a type of trust, which provides an unlimited marital deduction for qualified property put into the trust. However, rather than permitting the surviving spouse to have full power to distribute the property to anyone he or she wishes, the trust restricts the ability of the surviving spouse to distribute the property in the trust to a select group of individuals, such as the children, as agreed when both spouses were alive. Without the new QTIP laws, any attempt to "tie down" the property and restrict the surviving spouse's rights to transfer the trust property would have resulted in the property not qualifying for the marital deduction tax benefit.
 

Quitclaim Deed - A document (a deed) that transfers a person's interest in a piece of real estate, without the warranties or guarantees that are made in a warranty deed.
 

Revocable Living Trust - See Living Trust
 

Revocable Trust - A trust, which can be revoked or changed by the person(s) who established the trust without the consent of the trustee.
 

Real Property - Land and attachments to the land such as buildings and fences.
 

Right to Die - The right to decide not to have life prolonged by extraordinary or artificial means.
 

Rule Against Perpetuities - A complex rule of law which limits the amount of time property can be controlled after death by instructions in the decedent’s will. Some trusts can go on in perpetuity (forever), but most types of trusts have a maximum duration or life established by law.

Section 2053(b) Trusts - A type of irrevocable trust, authorized by section 2503 of the IRS code, often established for children. Section 2503(b) allows annual gifts up to $12,000 to be made to the trust, rather than directly to the child, and still have the gift qualify for the $12,000 annual gift tax exclusion.
 

Self-Proving Will - A will which has been properly witnessed (in Maine by two witnesses) and the witnesses have signed an affidavit before a notary public stating that all of the proper formalities of the will's execution have been complied with. This usually makes it very easy for the court to "prove" the will.
 

Separate Property - In community property states, all property which is not held commonly by a married couple is considered separate property. In general, it is property owned by one spouse in which the other spouse does not own an interest. Maine is not a community property state.
 

Settlor - A person who establishes a trust. The term settlor is used interchangeably with the terms "trustor" and "grantor."
 

Simple Trust - Trusts that are established with terms that require the trust to "pay" all of its income out, so that it does not accumulate income on which income taxes would have to be paid.
 

Spendthrift - An individual who cannot handle money wisely and spends it wastefully.
 

Split Gift - Each spouse is entitled to give any individual $12,000 in a calendar year, and, provided it is given properly, there is no tax consequence to the giver or receiver according to the "annual exclusion" laws. However, if a married couple tries to give more than $12,000 to an individual, they may file a gift tax return in order to avoid gift tax consequences.
 

Springing Power - A power to act which springs into existence upon the occurrence of an event like illness or incapacity.
 

Sprinkle or Sprinkling Power - The power given a trustee to decide how, when and why to distribute trust income to the trust's different beneficiaries. The sprinkling power allows the trustee to "sprinkle" the trust's income over the beneficiaries. It is a valuable power to give the trustee in irrevocable trusts because is allows the trustee to distribute income to the beneficiaries who will pay the smallest amount of income tax on the distribution.
 

Sprinkling Trust - A trust that grants the trustee the power to decide how, when and why to distribute the trust income among the trust's beneficiaries.
 

Spouse - Legal term for husband or wife.
 

Stepped-up Basis - The new basis established for a property after the property has been evaluated and taxed as part of an estate. The new basis or "stepped-up basis" is the value of the property used to assess the estate tax.
 

Successor Trustee - The trustee who takes over when the initial trustee is unable to serve that role.
 

Surviving Spouse - The husband or wife that lives after the death of his or her spouse.
 

Taxable Estate - The portion of an estate that is subject to federal estate taxes or state death taxes. Technically, all of an estate is subject to federal estate taxes, but because of the unified credit, only estates with a value over the exemption equivalent amount actually have to pay any estate taxes (see Appendix 1). Therefore, it is common to refer to an estate with a value over the exemption equivalent amount as a taxable estate and an estate with a value under the exemption equivalent amount as a nontaxable estate.
 

Tenants by the Entirety - A way of owning property, which, for almost all practical purposes, is the same as joint tenants. Tenancies by the entirety are creations of state law and are used only between husbands and wives, whereas joint tenancies can be used by anyone, not just by husbands and wives, who want to own property jointly. This form of ownership is not recognized in Maine.
 

Tenants in Common - A way two or more people can own property in common. The owners can own various percentages of the whole property, unlike joint tenants which each own an equal share. When one owner dies, he or she can leave his or her share to a chosen beneficiary; there is no automatic survivorship provision like a joint tenancy where the deceased person’s share goes to the surviving owners.
 

Testamentary Trust - A trust created by a will.
 

Testate - One who dies leaving a will. The opposite term is intestate.
 

Title - Document proving ownership of property.
 

Totten Trust - A bank account created by a person in his or her own name as the trustee for another person. It is a type of revocable trust until the creator dies; then it is paid out to the designated beneficiary(ies).
 

Trust - A legal document in which property is held and managed by a trustee for the benefit of another known as a beneficiary. A trust is a relationship in which property is held by one person for the benefit of another. The trust can be created verbally, but will most often be in writing.
 

Trust Certificate - A summary of the trust's terms prepared by an attorney that proves the trust exists.
 

Trust Corpus or Res - The property of a trust.
 

Trustee - The person or institution that manages the trust property under the terms of the trust. The trustee’s purpose is to safeguard the assets in the trust and distribute income and/or principal as directed by the trust document.
 

Trustor - A person who establishes a trust. Also called a "settlor" or "grantor."
 

Unified Credit – The Unified Credit is an amount that eliminates or reduces tax. It applies to both the gift tax and the estate tax. The taxpayer must subtract the Unified Credit from any gift tax owed. Any Unified Credit used in one year reduces the amount of credit that can be used against the gift tax in a later year. The total amount used by a taxpayer against gift tax reduces the credit available to use against the estate tax. In years 2006, 2007 and 2008, the Unified Credit is $345,800, and the applicable exclusion amount is $1,000,000. For estate tax purposes, the Unified Credit is $780,800 and the applicable exclusion amount is $2,000,000.
 

Uniform Gift to Minors Act - A statute adopted by almost all states, including Maine, that provides a method for transferring property by gift to minors and arranging for an adult to manage the property until the child is old enough to receive it.
 

Uniform Probate Code - A standardized code designed by the American Law Institute to streamline the probate process. Maine is one of a number of states that has adopted the code.
 

Unlimited Marital Deduction - The tax law that allows a person to give an unlimited value of property as a gift, or leave an estate of unlimited value to his or her spouse without a gift or estate tax being assessed.
 

Warranty Deed - A deed which warrants that certain contracts will "run" (continue) with your property.
 

Will - A legal document stating the intentions of a deceased person concerning the distribution of his or her property. The document names the person to manage the deceased’s estate and often nominates a guardian if there are minor children.