Glossary of Terms

The following information is intended as a general guideline only.  Legal advice should be sought from your lawyer.

AB Trust
A trust that allows couples to reduce or avoid estate taxes. When the first spouse dies, his or her half of the property held in an AB trust goes to the beneficiaries named in the trust, with the condition that the surviving spouse has the right to use the property for life and is entitled to any income it generates. This keeps the property out of the surviving spouse’s estate, reducing the likelihood that estate tax will be due when the surviving spouse dies.

Accrued Interest
is the amount of monies earned on an item between the date of the last interest payment (or initial purchase), and date of death.

Administration (of an estate)
The court-supervised distribution of a deceased person’s property.

Annuity
A purchased policy that pays a fixed amount of benefits every year for the life of the person who is entitled to those benefits under the policy.

Articles of Incorporation
A document filed with authorities to form a corporation.

Attorney-in-Fact
A person named in a written power of attorney document to act on behalf of the person who signs the document.

Audit
An examination of the financial records of a person, business or organization, typically undertaken to clean up careless or improper bookkeeping, or to verify that proper records are being kept.

Beneficiary
A person or organization that is legally entitled to receive benefits through a legal device, such as a will, trustor life insurance policy.

Business Name or Trade Name
The name of a business that one uses on its letterhead and bank account when dealing with consumers which may be different from the legal name which one uses when signing agreements, writing cheques or dealing with the bank.

By-Laws
The rules that govern the internal affairs or actions of a corporation.

Capital Asset
is any asset which was a value at the date of death.

Capital Disbursements
are payments made from the estate on account of debts of the deceased, the estate, distributions to beneficiaries and expenditures made by the estate. For guardianships, the principal portion of a mortgage payment, medical expenses and nursing home costs would be Capital Disbursements.

Capital Gains
The profit on the sale of a capital asset, such as stock or real estate.

Capital Receipts
Capital receipts are funds realized from the sale of original assets.

Capitalized Interest
Accrued interest that is added to the principal balance of a loan while you are not making payments or when your payments are insufficient to cover both the principal and interest due.

Collateral
Property that guarantees payment of a secured debt.

Conservator
Someone appointed by a judge to oversee the affairs of an incapacitated person. A conservator may also be called a guardian, committee or curator.

Corporation
A legal structure authorized by law that allows a business to organize as a separate legal entity from its owners, thereby shielding them from personal liability from business debts and obligations, and allowing the business to take advantage of corporate tax rules.

Creditor
A person or entity (such as a bank) to whom a debt is owed.

Death Taxes
See Estate Taxes.

Debtor
A person or entity (such as a bank) that owes money.

Durable Power of Attorney
durable power of attorney (POA) enables your elderly parent (called the "principal" in the power of attorney document) to appoint an "agent," such as a trusted relative or friend, to handle specific health, legal and financial responsibilities

Durable Power of Attorney for Finances
A legal document that gives someone authority to manage the Testator’s financial affairs if he or she becomes incapacitated.

Durable Power of Attorney for Healthcare
A legal document that names someone to make medical decisions if the Testator is unable to express his or her wishes for care.

Estate
Generally, all the property a person owns when he or she dies.

Estate Accounting
Estate accounting, also called Fiduciary Accounting, is a method of accounting used for the administration of estates, trusts and guardianships. Estate trustees and guardians have a duty to keep a complete an accurate set of accounts of their administration for beneficiaries to review upon request. The format for these accounts may vary depending on their purpose. For example, if the accounts are being passed before a court they must adhere to a rigorous format which generally has separate capital, revenue and investment accounts, together with a list of original assets and investments held by the estate at the beginning and end of the accounting period. Most estate accounts in court passing format, also require transactions to be referenced to their specific item, a laborious process automated by estate accounting software. If the accounts are being provided to a client, a somewhat more simplified format may be acceptable.

Estate Taxes
Taxes levied at death, based on the value of property left behind. Death taxes are called estate taxes. Some jurisdictions also levy death taxes, sometimes called inheritance taxes, on people who inherit property.

Executor
The person named in a Will to handle the property of someone who has died. The executor collects the property, pays debts and taxes, and then distributes what's left, as specified in the Will. The executor also handles any Probate Court proceedings and notifies people and organizations of the death. An Executor can also be called a personal Representative.

Gift Taxes
Taxes assessed on any gift, or combination of gifts, from one person to another that exceeds a certain dollar amount.

Guardian
An adult who has been given the legal right by a court to control and care for a minor and/or their property. Someone who looks after a child's property is called a "guardian of the estate." An adult who has legal authority to make personal decisions for the child, including responsibility for his physical, medical and educational needs, is called a "guardian of the person." Sometimes just one person will be named to take care of all these tasks. An individual appointed by a court to look after an incapacitated adult may also be known as a guardian, but is more frequently called a Conservator.

Guardianship
A legal relationship created by a court between a guardian and his ward—either a minor child or anincapacitated adult. The guardian has a legal right and duty to care for the ward.

Healthcare
directive A legal document that allows the Testator to set out written wishes for medical care—and to name a person to make sure those wishes are carried out. A healthcare directive may also be called a living will, advance directive or directive to physicians.

Holographic
A will that is completely handwritten, dated and signed by the person making it. Holographic wills are generally not witnessed.

Incapacitated

is either
  1. A lack of physical or mental abilities that results in a person's inability to manage his or her own personal care, property or finances.
  2. A lack of ability to understand one's actions when making a will or other legal document.
  3. The inability of an injured worker to perform his or her job.
Inheritance Taxes
Taxes levied by some jurisdictions on people who inherit property. Sometimes referred to as “Estate taxes.”

Inter Vivos trust
The Latin name, favored by some lawyers, for a living trust. "Inter vivos" is Latin for "between the living."

Interest
A commission that a borrower pays to a bank or other creditor for lending the borrower money or extending credit. An interest rate represents the annual percentage that is added to the balance of a loan or credit line. This means that if your loan has an interest rate of 8%, the creditor adds 8% to the balance each year.

Intestate Succession
The method by which property is distributed when a person dies without a valid will. Usually, the property is distributed to the closest surviving relatives.

Irrevocable Trust
A permanent trust. Once the trust is created, it cannot be revoked, amended or changed in any way.

Liability
  1. Legal responsibility for an act or omission.
  2. Something for which a person is liable. For example, a debt is often called a liability.
Lien
The right of a secured creditor to grab a specific item of property if you don't pay a debt. Liens you agree to are called security interests, and include mortgages, home equity loans, car loans and personal loans for which you pledge property to guarantee repayment. Liens created without your consent are called nonconsensual liens, and include judgment liens (liens filed by a creditor who has sued you and obtained a judgment), tax liens and mechanics liens (liens filed by a contractor who worked on your house but wasn't paid).

Life Estate
A property interest that provides the right to live in or use, but not own, a specific piece of real estate until death.

Life Insurance Policy
A contract under which an insurance company agrees to pay money to a designated beneficiary upon the death of the policyholder. In exchange, the policyholder pays a regularly scheduled fee, known as the insurance premiums.

Living Trust
A trust created during the Testator’s life to avoid probate after death. Property transferred into the trust during life passes directly to the trust beneficiaries after death, without probate.

Living Will
See “healthcare directive.”

Non-Dischargeable Debts
Debts that cannot be erased by filing for bankruptcy.

Non-Profit Corporation
A business structure that allows people to come together to obtain support for an organization (such as a charity) or for some public purpose (such as a hospital or environmental organization). Nonprofits receive benefits—for instance, reduced filing fees and tax exemptions —that are not available to regular corporations.

Notarize
The act of certification by a notary public that establishes the authenticity of a signature on a legal document.

Notary Public
A licensed public officer who administers oaths, certifies signatures on documents and performs other specified functions.

Order
A decision issued by a court. It can be a simple or complicated command, directing that a party either do or refrain from doing some act.

Original Assets for a Deceased
For an estate, these are the assets held by the deceased at the date of death, along with their associated market or probate values.

Original Assets for a Guardianship
For a guardianship, these are the assets held by the incapable at the date of declaration of incapacity, along with their associated market values.

Original Liabilities
Most persons have incurred some liabilities that remain unpaid at the date of death. Each liability source encountered should be recorded in the appropriate secured, unsecured, commercial or contingent liabilities. The creditor’s name and full disclosure of the debt particulars known are required together with the amount of debt outstanding plus accrued interest at the date of death for completeness purposes.

Pay-on-Death (POD) Designation
A way to avoid probate for bank accounts, government bonds, individual retirement accounts and, in many cases, securities or a car. A pay-on-death designation is created when the property owner names someone on the ownership document—such as the registration card for a bank account— to inherit the property at the owner’s death.

Pension
A retirement fund for employees paid for or contributed to by an employer as part of a package of compensation for the employees’ work.

Personal Property
All property other than land and buildings attached to land. Cars, bank accounts, wages, securities, a small business, furniture, insurance policies, jewelry, patents, pets and season baseball tickets are all examples of personal property.

Pot Trust
A trust for children—typically established in a will or living trust—in which the trustee decides how to spend money on each child, taking money out of the trust to meet each child’s specific needs.

Power of Attorney
A document that gives another person legal authority to act on behalf of the person who makes the document.

Principal

A Principal is:
  1. When creating a Power of Attorney or other legal document, the person who appoints an agent to act on his or her behalf.
  2. In the law of trusts, the property of the trust, as opposed to the income generated by that property. The principal is also known as the trust corpus; that's Latin for "body." For example, Arthur establishes a new trust with $100,000, with interest and other income payable to Merlin; the $100,000 is the trust principal or corpus.
Principal for Corporations
A Principal for Corporations can generally be one or more of either: an Officer, Director, Shareholder or a Member of a Corporation.

Probate
The court process following a person’s death that includes proving the authenticity of the deceased person’swill, appointing someone to handle the deceased person’s affairs, identifying and inventorying the deceased person’s property, paying debts and taxes, identifying heirs and distributing the deceased person’s property.

Property Guardian
See “guardian.”

QTIP Trust
A marital trust for wealthy couples designed to reduce estate taxes. The surviving spouse receives only a “life estate” in the trust property, which passes to the trust’s final beneficiaries after the surviving spouse’s death. No estate taxes are assessed on the trust property until the surviving spouse dies.

Representative
A representative of a deceased person, sometimes called a "personal representative" or “legal personal representative," is one who performs a function, such as an Executor or administrator, of a deceased’s Estate.

Revenue Disbursements
Revenue disbursements are payments made by the trustees out of the revenue account.

Revenue Receipts
Revenue receipts are funds earned on original assets, as well as income earned on investments made by the trustees after the date of death.

Secured Debt
A debt on which a creditor has a lien. The creditor can initiate a foreclosure or repossession to take the property identified by the lien, called the collateral, to satisfy the debt if the borrower defaults.

Shareholder
An owner of a corporation whose ownership interest is represented by shares of stock in the corporation. Also called a “stockholder.”

Social Security
The general term that describes a number of related programs administered by a federal government, including retirement, disability, dependents and survivors benefits. These programs operate together to provide workers and their families with some monthly income when their normal flow of income shrinks because of the retirement, disability or death of the person who earned that income.

Sole Proprietorship
A business owned and managed by one person. Business profits are reported and taxed on the owner’s personal tax return and the owner is personally liable for all business debts.

Surviving Spouse
A widow or widower.

Survivors Benefits
An amount of money available to the surviving spouse and minor or disabled children of a deceased worker who qualified for social security retirement or disability benefits.

Testator
A Testator is one who has made a legally valid Will before death.

Trademark
A word, phrase, logo, symbol, color, sound or smell used by a business to identify a product and distinguish it from those of its competitors.

Trust
A legal device used to manage property—whether real or personal— established by one person for the benefit of another. A third person, called the trustee, manages the trust.

Trust Corpus
is Latin for "the body" of the trust. This term refers to all the property transferred to a trust. For example, if a trust is established (funded) with $250,000, that money is the corpus. Sometimes the trust corpus is known as the "res," a Latin word meaning "thing."

Trust Deed
A method of financing real estate purchases (similar to mortgages). The trust deed transfers title to the property to a trustee, often a title company, who holds it as security for a loan. When the loan is paid off, the title is transferred to the borrower.

Trust Unit
A trust unit is a common investment vehicle which pays monies to the holder of the trust unit on a regular basis. The amount of money paid on a regular basis is determined by the number and value of the investment in the trust unit. As trust units pay monies on a regular basis, a statement is produced once a year which shows the breakdown of total monies paid. The statement may breakdown payments as being “return of capital”, “interest revenue”, “dividend revenue”, “gain on capital” and “foreign dividend”.

Trustee
The person who manages assets owned by a trust under the terms of the trust document. A trustee’s purpose is to safeguard the trust and distribute trust income to a principal as directed in the trust document. With a simple Probate-avoidance living trust, the person who creates the trust is also the trustee.

Trustee Liabilities
Trustee Liabilities are used to isolate this debt activity from other accounts for clear audit process.

Will
A document in which a person, called the Testator, specifies what is to be done with his or her property at death, names an executor to oversee the distribution of that property and names a guardian for his or her young children.

Witness
A person who watches another person sign a document and then adds his name to confirm that the signature is genuine.

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