Non-Marital Property – Property that is considered to be the property of one spouse, rather than both spouses. Upon divorce, non-marital property is not subject to equitable distribution, as opposed to marital property, which is subject to equitable distribution. For a detailed description of how Illinois defines non-marital property, please see Newsletter #7.
Outright Bequest – A transfer of assets without limitation as to when or for which purposes the recipient may use such assets. The alternative for the giftor who is concerned about how and when the assets will be used and wants to set limitations as well as protect the assets from the beneficiary’s creditors, possible divorce and other personal issues is to make the bequest through trust. For bequests in trust, it is the trustee’s duty to abide by the guidelines stated in the trust document when making distributions to the beneficiary.
Per Stirpes – A Latin term commonly used in trust documents to provide for the distribution of a deceased individual’s share to his or her descendants in equal shares. The literal translation of this Latin term is “by the roots.”
Personal Property – The term “personal property” or “personal effects” includes items such as motor vehicles, boats, clothing, furniture, jewelry, hobby equipment and collections. Generally, personal property should be assigned to the Revocable Living Trust so that such property does not have to go through probate. The trust document should then provide for the distribution of personal property. Additionally, an independent memorandum may be left with the Trust gifting certain items of personal property to certain individuals.
Pet Trust – A trust which allows the owner of a pet to provide for the pet’s care in case of the owners disability or death. In order to establish a Pet Trust, it is important to carefully consider the individual who will be named as trustee of such trust. The value of the assets allocated to a Pet Trust must be a reasonable amount for the care of the pet or pets. An amount that is deemed to be excessive may be reduced by the court.
Portability – Introduced by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, portability allows the surviving spouse of a decedent to use the remaining Estate Tax exemption of the decedent and apply to to his or her own taxable estate at death. See Newsletter #9 for a more detailed discussion.
Pourover Will – A testamentary document that pours all of the creator’s assets into his or her Trust at death. The Trust document then controls the distribution of the assets. Proper funding of a Revocable Living Trust during the individual’s life is important, but the Pourover Will ensures that any assets that remain outside of the Trust, whether intentionally or unintentionally, are transferred to the Trust at death in order to be distributed in accordance with the wishes of the individual.
Present Interest Gift – In order for a gift to qualify for the annual ($13,000) or lifetime ($5 million) Gift Tax exemptions, it must be a present interest gift. A present interest gift is one in which the beneficiary has an immediate, unrestricted right to the use, benefit, and enjoyment of the gifted property. If Thomas gives his son, Smith, $5,000 and Smith can use it now, it is a gift of a present interest. If Smith is not entitled to such benefits, then the gift is considered a future interest. An example of a future interest would be if Thomas established a trust for the benefit or Smith and made a gift to such trust without granting Smith a present right to withdraw the gift. Such a gift would not be considered a present interest gift and would thus be included in Thomas’ taxable estate upon his death.
Probate – The process by which county court validates a decedent’s Will. Probate can be a complex, lengthy process which requires the court’s approval for distributions of assets and the opening and closing of the estate.
Qualified Domestic Trust (QDOT) – A trust established to transfer assets beyond the Estate Tax exemption to a spouse who is not a U.S. citizen. A QDOT must have a U.S. trustee and must withhold tax on any distributions.
Qualified Terminable Interest Property (QTIP) Trust – A trust whose assets are held exclusively for the benefit of the surviving spouse during his or her life and then pass as provided by the grantor in the trust document. The benefit of a QTIP Trust is that the grantor determines how the assets will pass after the death of the surviving spouse but any transfer taxes on the trust assets are deferred until the death of the surviving spouse.
Revocable Living Trust – A revocable and amendable agreement that determines how a person’s property is to be managed and distributed during his or her lifetime and also upon death.
Simple Will – A testamentary document that provides for a basic distribution to the individual’s spouse and/or descendants with no restrictions or trust provisions.
Skip-Person – A related person who is two or more generations below the individual making the transfer or an unrelated person who is 37 1/2 years or more younger than the person making the transfer. A transfer from an individual to a Skip Person is generally subject to the Generation Skipping Transfer Tax.
Special Needs Trust – An irrevocable trust that allows the creator to provide for a special needs beneficiary without risking the loss of government aid. A Special Needs Trust can also be self-settled.
Tenancy By the Entirety – A form of real property ownership in which a husband and wife own property together “not as joint tenants or as tenants in common but as tenants by the entirety.” Not all states recognize this form of ownership, but Illinois does recognize it. In a tenancy by the entirety, each spouse owns an equal share. There is also a right of survivorship, which means that at the death of one spouse, his or her share automatically passes to the other. Additionally, property held in tenancy by the entirety is subject only to the joint debt of both owners and may only be sold by both spouses together. In other words, a creditor of the husband may not force the sale of the home in order to collect on the debt.
Testamentary Trust – A trust that is created at the creator’s (testator’s) death by his or her Will, as opposed to a Revocable Living Trust, which is created by the trust document during the grantor’s life.
– The creator or signor of a Will.
Trustee – The individual or financial institution who holds title to the trust property and manages it according to the terms of the trust document. The grantor of a Revocable Living Trust often serves as trustee during his or her lifetime and another person or a corporate trust company is named to serve as successor trustee after the grantor’s death or if the grantor is unable to continue serving for any reason.
Will – More formally known as a Last Will and Testament, the Will names Executors and Guardians for minor children and can take several forms (also see Complex Will, Pourover Will and Simple Will).