Will & Estate terminology
ADJUSTED
COST BASE: The tax cost that is used to determine the capital gain or
capital loss realized on the disposition of a capital property.
ADMINISTRATOR:
An individual or corporation appointed by a court to administer the
estate of a person who dies without making a Will, or the estate of a
person who dies with a Will, but without anyone prepared or able to act
as executor.
ALTERNATIVE APPOINTMENT: If the executor is unwilling or unable to act, then the alternative is contacted to perform the duty.
APPRAISAL: A document showing the fair market value of an asset or a property.
ASSET:
Something that is owned and that has tangible value- a physical asset, such as a car or house; or
a financial asset, such as cash or a Savings Account, Guaranteed
Investment Certicate, Stocks, Bonds, RRSP's, business interests,
insurance policies, etc.
ATTRIBUTION RULE: Any taxable income or
gain realized on an asset will be attributed back to the person who
made the investment, regardless of who holds the current title to the asset.
BENEFICIARY:
A person entitled to receive a gift or benefit pursuant to the terms of
a Will, Insurance policy, RRSP, RRIF, Trust deed or any other such document.
BEQUEST/LEGACY: A gift received from an individual, on their death, through a Deed known as a Will.
BUY-SELL
AGREEMENT: An agreement between business partners or shareholders which
sets out important matters concerning their business relationship,
including the manner in which the interests of each of the partners or
shareholders is to be purchased in the event of retirement, disagreement, disability
or death.
CAPACITY: Means a legal age adult, of sound mind, subject to no outside influence, having the ability to execute a formal Will.
CAPITAL
GAIN: A form of taxable profit derived from selling a capital property at a higher price
than the one at which it was purchased. One-half of the amount is taxable
as income when the asset is disposed of or is deemed disposed of.
CAPITAL LOSS: The tax loss that results when a capital property is sold for less than its purchase price.
CERTIFICATE
OF APPOINTMENT: A document issued to an executor by the court, that
confirms the executor's authority to administer a particular estate.
This document is also known as Letters Probate or Grants of Probate in some common law jurisdictions.
CHARITABLE
TRUST: An irrevocable trust where the current or future beneficiary is
a charitable organization. These trusts can offer significant income
tax and capital gains tax benefits. A Trust must be prepared and executed by a Notary.
CODICIL:
A legal document
prepared as an addition,addendum or revision to a Will, by which a
Testator can
make changes to the provisions of his earlier Will without executing a
whole new Will. If there are more than two changes, or if the Testator
wishes to not let the previous wishes be known, it is advisable to then
redo the Will.
A Notary codicil does not need to be probated. Any other type of codicil will be subject to probate.
CONTINGENCY: Making arrangements for an unknown
situation, which may be positive or negative, e.g. a contingency fund -
monies set aside as insurance for a possible future problem that can be
solved with a cash payment.
CONTINGENT BENEFICIARY: A person who
is not the primary beneficiary but would take the place of the primary
if certain events took place, for example, the death of the primary
beneficiary.
ESCHEAT: When there are no surviving beneficiaries or heirs, the Government takes over the estate property.
ESTATE:
A person's estate consists of all the property which is owned at death
and which can be disposed of by his/her Will. The "net estate" is the
total of such property less any debts or taxes owed by the person at death.
ESTATE
FREEZE: A legal procedure that limits the growth in value of the
freezor's estate. This is done by diverting the growth in value to the
subsequent generation by restructuring the ownership of property or
business assets. Estate Freezes often involve the use of a Family Trust
to maintain control in the freezor's hands
ESTATE PLANNING: The orderly arrangement
of one's legal and financial affairs to maximize the value transferred at death
to the people and institutions favoured by the deceased, with minimum
loss of value due to income taxes, capital gains taxes, transfer duties and forced liquidation of assets.
ESTATE
TAX: A transfer tax imposed on the value of property left at death;
often called an inheritance tax or death tax. Estate taxes are often
levied when the Will is probated.
ESTATE
TRUSTEE: A person or corporation appointed by a Will to carry out the
settlement and administration of the estate. The Executor's function is
to probate the
Will, if required, settle any debts, file the necessary tax returns,
gather in the assets and distribute the estate. The Trustee's function
is to carry out the terms and responsibilities of any ongoing trusts
created in the Will. Sometimes, the Executor and the Trustee are the
same person or
corporation, but not always. The two tasks are quite distinct in nature
and require different skill sets.
EXECUTOR/
EXECUTRIX: The person named in a Will to manage the estate of the
deceased according to the terms of the Will. Without a Will, the function
is performed by a court appointed administrator.
FAMILY
TRUST: An inter vivos trust established by a Settlor, in favour of one
or more Trustees, with one or more family members as beneficiaries. A Family Trust must be prepared and executed by a Notary.
FIDUCIARY:
An individual or institution occupying a position of responsibility and
trust. Examples would include an Executor, Administrator or Trustee,
hence the term ''fiduciary duties''.
GUARDIAN:
A legal guardian is a parent living with and supporting his or her own
child. Also, this term includes a person appointed by the court to be
the guardian and a person appointed in the Will of the child's parent
to be the guardian of that child. Guardianship ceases once the child
reaches the age of majority, which is 18 in many jurisdictions.
HEIR: A person legally entitled to receive property from a decedent through the act of inheritance.
HOLOGRAPH
WILL: A Will written in the Testator's/Testatrix's own handwriting and
dated and signed by the Testator/Testatrix without a witness being
present. Holograph Wills must undergo the costly and lengthy process of
probate.
INCOME
ATTRIBUTION: The process specified under the Income Tax Act where
certain investment income may be deemed taxable to a person other than
the recipient, if the investment income was the result of certain
related party transactions between family members.
INCOME
SPLITTING: The
process of diverting taxable income from an individual in a high tax
bracket to one in a lower tax bracket in order to minimize the overall
amount of taxes paid. This is legitimately done with Family Trusts and
Testamentary Trusts.
INTER VIVOS: From the
Latin for "between living persons," usually refers to a trust
established during the lifetime of the person setting up the trust (the
"settlor"), as opposed to a "testamentary" trust in a Will which takes
effect only at the person's death.
INTER
VIVOS TRUST: A trust created while the person making the trust is still
alive. An inter vivos trust must be prepared and executed by a Notary.
INTESTATE:
The term used to describe the estate of a person who dies without
leaving a Will. Intestate estates are settled according to rules laid
down by the Government, rather than the wishes of the person dying.
IRREVOCABLE TRUST: A trust which the settlor does not have the power to revoke or amend once it has been established.
ISSUE:
A term commonly used in a Will which may mean either the person's
children or grandchildren or all the Testator's lineal descendants,
depending upon the context in which it is used.
JOINT PROPERTY: Property owned jointly with another person or persons.
JOINT
TENANCY: A form of co-ownership under which the property interest of a
deceased person automatically passes to his co-owner(s).
LETTERS
OF ADMINISTRATION: A certificate confirming the authority set out in
the Will to administer a particular estate, issued to an administrator
by the proper court.
LETTERS OF A COURT-APPROVED DOCUMENT GIVING
A PERSON THE RIGHT TO ADMINISTER ADMINISTRATION: The authority to administer the estate of a person
who dies without leaving a Will.
LETTERS
PROBATE: A certificate of authority to administer a particular estate,
issued to an executor by the proper court after the costly/lengthy
process of probate has ended.
LIABILITIES: What is owed in the way of debt or taxes by the deceased or his estate.
LIFE ANNUITY: An annuity under which payments are guaranteed for the life of the annuitant.
LIFE
ANNUITY (WITH A GUARANTEED TERM): An annuity with a special clause that
guarantees payments will continue for a specified period, even if the
annuitant dies before the end of that specified period (term).
LIFE INSURANCE TRUST:
This is an irrevocable trust which is generally established for the
purpose of excluding life insurance proceeds from the estate of the
insured and the spouse of the insured, for estate tax purposes and for flexibility purposes.
LIQUID ASSETS: Stocks, gold coins, GIC's, Treasury bills and anything else that can be quickly and easily converted to cash.
LIVING
WILL: If you become incapacitated, this document will preserve your
wishes and act as your voice in future medical decisions, if you are unable to
speak for yourself as a result of the medical challenges.
MANDATE:
A term used in Quebec to describe the function of an enduring Power of
Attorney in other jurisdictions. The Mandate is normally prepared to
deal with the risk of a possible incapacity and ensures that property
administration and medical decisions are placed in the hands of trusted
family members, advisors or friends.
PER
CAPITA: ( A Latin term) A gift to issue in equal shares "per capita"
means that the gift will be divided amongst the number of children
surviving at
the Testator's/Testatrix's death, (i.e. count the heads and divide the
estate amongst them. Predeceased children or their progeny are not
included)
PER STIRPES: (A Latin term) In contrast, a gift
to issue in equal shares "per stirpes" means that if any one child
predeceases the Testator/Testatrix, that child's share will be passed on
to that child's children, if any.
PERSONAL NET WORTH: An individual's total assets minus total liabilities.
PERSONAL
PROPERTY: All property other than real property, which is real estate.
Examples include stocks, bonds, GIC's, artwork, furnishings, etc.
PERSONAL
REPRESENTATIVE: A general term applicable to a person, including an
administrator or executor, having the legal right to represent another person,
including a deceased person.
POUR-OVER WILL: A Will which is
used in conjuction with a revocable living trust, to "pour over" any
assets which are not transferred to the trust prior to death, into the trust.
POWER
OF ATTORNEY: A legal document that gives signing authority for your
affairs to a spouse or other trusted person.
POWER
OF ATTORNEY- PERSONAL CARE: A legal document
that gives signing authority for your personal care and health issues
to a spouse or other trusted person, in the case of an accident or
other
circumstances that leave you unable to manage your own affairs.
POWER
OF ATTORNEY- FOR PROPERTY: A legal document that gives signing authority
for your affairs to a spouse or other trusted person, in case of
an accident or other circumstances that leave you unable to manage your
own affairs. This type of Power of attorney applies strictly to financial and business transactions.
PRINCIPAL
RESIDENCE: An owner occupied home that can be sold at a profit without
paying income or capital gains tax. One can only have one principal
residence. However, one can designate a secondary residence as a
principal residence.
PROBATE:
The costly/lengthy procedure by which the court declares a deceased person's last
Will to be valid. A "Grant of Probate" is the Executor's proof of his
capacity to act as Executor. A Notary Will is the only type of Will that can avoid Probate.
RESIDUE: "Residue of an estate"
commonly refers to the remainder of an estate after all debts, taxes and
administrative expenses have been paid and all specific gifts of
property and cash legacies have been given out.
REVOCABLE TRUST: A type of Trust that gives the grantor the power to alter the trust terms or even revoke the trust.
RIGHT
OF SURVIVORSHIP: The right to succeed to the ownership or part
ownership of property as the result of the death of another owner or part
owner.
SETTLOR: The person establishing and transferring assets to a trust, also known as the grantor.
SPOUSE:
For purposes of The Income Tax Act, a spouse includes a common-law
partner (a person who cohabits with the taxpayer in a conjugal
relationship for a continuous period of at least one year).
SPOUSAL
RRSP: An RRSP in which one spouse or common-law partner makes the annual contribution and claims the
tax deduction, but where title to the plan proceeds is held in the name of
the other spouse or common-law partner.
SUCCESSION DUTIES: A direct tax levied by some
provinces (Ontario, Manitoba and Saskatchewan) on the value of the estate transferred at
death.
SUCCESSION DUTY
RELEASES: Permission granted by a provincial succession duty department
to transfer or dispose of assets before a full accounting has been made
to the department determining the full duty payable.
SUCCESSION
PLANNING: Business planning for the next generation. Planning for the
smooth transition of control and management by the current
owner/manager to the future owner/manager.
TENANCY IN COMMON: A
form of co-ownership under which the co-owner's interest can be gifted,
sold or bequeathed to any other person.
TESTAMENTARY TRUST: A
trust created under the terms of a Will which takes effect upon the
death of the testator. A Will may contain multiple testamentary trusts.
TESTATE: Refers to a person who has died leaving a legally valid Will.
TESTATOR/TESTATRIX: A person who makes a legal Will.
TRUST:
A formal arrangement under which assets are set aside by a settlor and
administered by a trustee for the benefit of another person known as
the beneficiary. A Trust must be prepared and executed by a Notary.
TRUSTEE A person who administers assets held in trust for another person.
WILL:
An important legal document made in accordance with certain legal
formalities, by a
person while alive, which takes effect on death and disposes of his/her
property to chosen beneficiaries. A Notary Will is signed in the
presence of the Notary and one neutral witness. A Lawyer Will is signed
in the presence of two witnesses. A Handwritten Will is signed and
dated by the person alone. The Notary Will is the only Will not
requiring the costly/lengthy court procedure of Probate, before giving effect to the dispositions of the Will.
WILL
EXECUTING: The
process of making your Will legally valid. This usually involves
special formalities being fulfilled at the signing by the testator and
the witnessing of that signature. A Notary Will has the most specific
formalities attached to it.
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