In my last article, I explained why I chose to name this column “Legal-Ease” (“Estate Planning From A-Z: A Glossary, Part I,” the Pacific Citizen’s June 16-29, 2017, issue). My intention was to take legal jargon and explain them in everyday terms.
As an estate planning attorney, I’m often asked by my clients to define many of the expressions and terminology that appear in the various documents in their Estate Plan. This article picks up where I left off, touching upon some of the basic key terms that appear within a typical Estate Plan.
No Contest Clause: Many of today’s Estate Plans contain a No Contest Clause, which is designed to reduce the likelihood of litigation. A standard No Contest Clause states that if an individual challenges the validity of a will or trust, or any of its provisions, then that person risks losing his or her rights to receive an inheritance. Essentially, the contesting party has to decide whether he or she should accept the gift as is or risk losing it entirely.
Probate: The court-supervised process that an estate gets settled after a person passes. If you die with a will, probate is not necessarily avoided. Your will must be “proved” in court to be accepted as a valid document that serves as a last testament of your wishes. Probate proceedings are expensive (can cost thousands of dollars) and lengthy (on average takes about six to nine months). The most common way to avoid probate is by funding your assets into a living trust.
Qualified Domestic Trust (QDOT): A special type of trust that is used when a U.S. citizen dies and leaves a substantial amount of assets to a spouse who is not a U.S. citizen. The goal is to enable the non-U.S. citizen spouse to qualify for the unlimited marital deduction and avoid paying federal estate taxes. A QDOT is generally only utilized when the estate exceeds the federal estate tax exemption (which, as of 2017, is $5.49 million per person).
Revocable Living Trust: The most common type of Estate Planning instrument. Revocable living trusts can be changed, modified or revoked during your lifetime as long as you have the mental capacity to do so. This type of trust is popular due to its flexibility and the control you retain during your lifetime. Revocable living trusts are contrasted with Irrevocable Trusts, which cannot be altered under most circumstances.
Separate Property: Applies to married couples. Separate Property is any property (real estate, personal property, etc.) that is acquired before marriage, after divorce, by gift or inheritance during marriage or purchased during the marriage with separate property funds. For example, if Beth purchased a home before marrying Don, it is her separate property; Don has no right to it. If Beth inherits $50,000 from her grandmother, it is her separate property. If she uses that money to purchase a rental property, it is still her separate property because she bought it with separate property funds. Separate Property is contrasted with Community Property, which is property acquired during the marriage (other than what is Separate Property).
Trustee(s): A person(s) or organization responsible for managing trust assets. The Settlor (creator) of the trust is typically the trustee during his or her lifetime. Upon death, an appointed Successor Trustee steps in to continue managing the property and/or distribute the assets to the named beneficiaries of the trust. Trustees are typically individuals, but they can also be a corporate trustee, such as a bank or financial institution.
Uniform Transfers to Minors Act (UTMA): Allows a minor to receive to receive gifts (real property, money, etc.) without appointing a guardian or trustee. Instead, the donor appoints a custodian who manages and invests the property on behalf of the minor until he or she turns 18.
Validity: There are certain requirements that should be met in order for legal documents to be considered valid. Wills, for example, must be created by an individual who is at least 18, has the intent and capacity to make a will and is executed by the individual and witnessed by two people.
Pour-Over Will: A document that works in conjunction with a living trust that serves as a “catch-all” or safety device. If you have a living trust, your real property and financial assets should be funded into it. However if something slips through the cracks, the Pour-Over Will ensures that any and all “unfunded” assets are transferred to (or poured-over into) your living trust.
Although this glossary highlights many of the most common Estate Planning terms, it is not a comprehensive list. To learn more about the terminology that appears in your own Estate Plan, feel free to contact your local attorney.
Staci Yamashita-Iida, Esq. is an Estate Planning attorney at Elder Law Services of California. She can be contacted at (310) 348-2995. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or JACL. The information presented does not constitute legal advice and should not be treated as such.