Arkansas Community Bankers - Trusts and Estates Glossary

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Trusts and Estates Glossary

ABATE, ABATEMENT

If an asset abates, it decreases in value. In the context of inheritance, an abatement is a decrease in the amount of an asset (a bequest or legacy) due to lack of sufficient funds in the estate to provide the full amount of the bequest. Usually, the value of any such bequest decreases in value proportionately to all other bequests if an abatement is necessary.

ACCOUNTING, ACCOUNTING PERIOD

Accounting is the language of business employed to communicate financial information. General accounting is concerned with recording transactions for a business or other economic unit. It is the art of recording, classifying and summarizing in terms of money transactions and events and to explain how and why these transactions have taken place. In business, an accounting period is a length of time over which profits or losses are calculated.

ACCRUE, ACCRUED INTEREST and INCOME

Something accrues when it grows or increases. Accrued Interest is interest earned by but not yet paid over a period of time. Similarly, accrued income is income earned but not yet received. In accounting, we must always account for the entire asset, as well as the accrued income on that asset. The same applies to accounting for liabilities and revenues.

ADEMPTION

Ademption is the act of removing a particular bequest or legacy out of a person's will or trust. The ademption may take place by changing the terms of the will withdrawing or revoking the bequest; or the person may decide to make the specific gift while alive, thus taking it out of the will or trust; or, the person may, while alive, part with the specific property in some other way (sell it, for example), thus making the bequest of that particular item impossible.

ADJUSTED BASIS

The adjusted basis is the original basis (generally the original cost) plus the value of any additional investment in that property since its acquisition, and minus allowances for depreciation and other deductions taken on that property.

ADJUSTED GROSS ESTATE

The adjusted gross estate is defined as the total gross estate minus the debts and expenses of the estate. The total gross estate includes all assets.

AD LITEM

Literally in Latin, ad litem means 'for the suit'. In reference to a legal proceeding, ad litem means for the purpose or duration of a lawsuit or similar legal action.

See GUARDIAN AD LITEM.

ADMINISTRATOR, ADMINISTRATION

An Administrator, also known as a "personal representative", is the person or institution appointed by the probate court to settle (or administer) an estate when the deceased has neglected to name someone. In most states, the probate court issues letters of administration to the Administrator, which officially appoints and empowers the Administrator to act. A female Administrator is an Administratrix. An Administrator is entitled by law to payment for services rendered; the amount generally varies according to size of estate, difficulty of settlement and/or state statute. An Administrator may waive all or part of the fee.

The administration of an estate involves collecting and making an inventory of the estate assets, meeting claims by creditors, providing for estate taxes, investing and managing the assets of the estate, accounting to the court for all financial transactions regarding the estate, and distributing the remaining assets to those legally entitled to them.

ADVISOR, SUCCESSOR ADVISOR

In a trust agreement, an advisor may be named without whose approval the trustee is prohibited from making certain transactions with the income and principal of the trust fund. The powers of the advisor are defined in the trust agreement. Often a successor advisor is named as well, to take over as advisor should the person originally named become unwilling or unable to act as advisor.

AFFIDAVIT, AFFIANT

An affidavit is a written statement signed and sworn to before a person authorized by law to attest to such a statement. An affiant is the maker of an affidavit.

AGENT, AGENCY COUPLED WITH AN INTEREST

An agent is a person or institution given authority by another person (the principal) to act for that person or on behalf of that person on certain legal or financial matters. This authority expires on the death of the principal unless the agency arrangement has been "coupled with an interest". In an agency coupled with an interest, the agent has some legal right to (an interest in) the property that is covered by the agency arrangement, and his position as agent continues until that interest ends. Generally, the ownership of the principal's property does not pass to the agent, whereas in a full trust agreement, ownership does pass to the trustee.

See CUSTODIAL ACCOUNT, MANAGING AGENCY.

AGREEMENT, ANTE (PRE-) and POST-NUPTIAL AGREEMENT

An Agreement is an arrangement between two or more parties in which the parties consent to act according to the terms of the agreement. If such an agreement is legally binding and enforceable, it is a contract.

A Pre-Nuptial Agreement is between a man and a woman executed prior to their marriage in which they determine their rights to each other's property after their marriage. A Post-Nuptial Agreement is executed after a marriage for the same purposes as a pre-nuptial agreement.

ALLOWANCE

The term allowance is used frequently in the context of estate settlement and is also known as a "Widow's Award," "Spouse's Award," and "Family Allowance." An allowance is money out of the decedent's estate that a probate court can approve to be given to the surviving spouse and/or surviving children during the claims period of the estate. The allowance is considered a claim (as opposed to a distribution) and has priority over all claims against the estate excepting funeral and administration expenses.

AMBULATORY

The term ambulatory means 'subject to change'. While an individual is still alive, the will or revocable trust can be changed, amended, or revoked. Therefore either document is referred to as ambulatory. No provisions of a will have any legal effect until the death of the maker. Certain provisions of a revocable trust are in effect during the life of the maker.

AMORTIZE, AMORTIZATION

Amortize is a term associated with reducing the amount of a debt over a period of time by periodic payments that cover both interest and principal owed to the lender. Amortization is the process of paying a debt in this manner.

ANCILLARY, ANCILLARY EXECUTOR AND ADMINISTRATOR, ANCILLARY LETTERS TESTAMENTARY AND LETTERS OF ADMINISTRATION

Ancillary means related to, but not directly a part of. A person may own real property in a state other than the state of the person's principal legal residence (domicile). Such real property is under the jurisdiction of the appropriate probate court of the state in which the property is located, and its transfer at the death of the non-resident owner must be settled by a citizen of that state. Thus, the term "ancillary" used with administrator, executor, letters of administration, or letters testamentary describes those persons and letters that are associated with the probate of property owned by an individual whose principal legal residence was in another state. A person using a revocable trust to hold their property will not be subject to ancillary probate, because they are not subject to the probate system.

APPRAISE, APPRAISAL

Property that is appraised has a value placed on it. A decedent's estate is appraised in order to ascertain a value for tax purposes. This need only be done if the estate must file a tax return. All of the decedent's property is listed (the inventory) and valued, and this total package is called an appraisal.

APPRECIATE, APPRECIATLON

Property that appreciates increases in value. This process is called appreciation.

ARMS LENGTH SALE or TRANSACTION

If a sale is considered to be conducted at arms length, no prior relationship between buyer and seller has affected any aspect of that sale. For example, a parent cannot sell an asset to their children for less than fair market value. If they do, the sale is not considered to be at arms length.

ASSESS, ASSESSMENT

To assess property is to place a value on it for the purpose of taxation. To assess can also mean to impose the tax. An assessment, then, can be the evaluation of property as well as the resulting amount taxed.

ASSET, ASSETS, TYPES OF ASSETS

An asset is something of value that is owned and therefore available for the payment of debts. Assets are held under varying ownership in an individual's estate. They may be held in individual, joint or as business interest ownership.

In business, assets are commonly categorized as follows: current assets are those properties which can be converted to cash generally within the year; fixed assets are those properties that cannot be converted into cash quickly without sacrifice; and intangible assets are those properties that are not physical in nature, but do have value - for example: goodwill, copyrights, or licenses.

ASSIGN, ASSIGNMENT

To assign property is to transfer full or partial rights or interests in that property to another person. An assignment is the act of such a transfer. The assignee is the person to whom the property is transferred. The person who transfers the property is the assignor.

ATTEST, ATTESTATION

To attest is to witness the signing of a document and then to sign it as a witness. Attestation is the act of witnessing the signing of a document. A notary

ATTORNEY-IN-FACT

The person named in a Power of Attorney who is given the power to act for the one who authorized and executed the Power of Attorney.

AUDIT

An audit is to examine financial holdings and transactions. It is performed to examine the reliability of the records and accounting performed.

AUTHENTICATE, AUTHENTICATED COPY

If a document is authenticated, it is verified as genuine by a proper legal authority. An authenticated copy of a document is a copy that is legally attested to as identical to the original.

BALANCE SHEET

A balance sheet is a statement of a corporation's or individual's financial status at a particular time. The balance sheet lists assets and liabilities plus capital investment. On a balance sheet, the total value of assets must equal the total value of liabilities plus capital.

BASIS, COST BASIS

The basis (cost basis) of property is generally considered to mean its actual cost at the time of its acquisition. Adjusted basis is the cost basis with adjustments made for additional amounts spent above the original cost. The adjusted basis is used to calculate gain or loss on the sale of that property.

BEARER BOND

A bearer bond is a bond owned by the person who has possession of it (the bearer). The issuer of the bond keeps no record of the persons or institutions to whom the bond has been issued or of who currently holds it (thus, the bond is called "unregistered"). On the bond itself are detachable certificates called coupons which denote interest due the bearer on specific dates. These coupons must be submitted to the proper authority for collection of interest.

BENEFICIAL ACCOUNT, INTEREST, OWNERSHIP

PA beneficial account is an account, such as a savings plan, opened by one individual for the benefit of another. The interest earned on the account is credited to the beneficiary, but the original investor is considered to own both principal and interest, and, as a result of these rights, pays income tax on the interest earned.

A beneficial interest in property is a right to the use and enjoyment of all or part of that property without necessarily having title to the property. Similarly, a beneficial owner of property has all rights to that property without actually holding title to it. For example, a stockbroker may hold title to his customer's securities while the customer receives the income from them; the customer is the beneficial owner.

BENEFICIARY, TYPES OF TRUST BENEFICIARIES

A beneficiary is a person or institution named to receive the income and/or principal of a certain property. For example, the beneficiary named in a life insurance policy will receive the net benefit of the policy at the death of the insured. The beneficiary of a trust receives income and/or principal from the trust.

A beneficiary of a trust who receives only the income generated by the trust fund is known as an income or life beneficiary. A person to whom the principal of a trust fund passes at the death of the life beneficiary is known as a remainderman. A contingent beneficiary or remainderman is a person or institution whose interest in the income or principal of a trust is contingent upon a named future event.

A preferential beneficiary is a beneficiary made so by law. Some states require that certain family members receive a certain share of the decedent's distributable estate. This share is often called the "statutory share," and the recipients are preferential beneficiaries; they must receive their shares before other distributions are made. These are called dower and curtesy rights.

BEQUEATH, BEQUEST

To bequeath is to give personal property (as opposed to real property) by will. Such a gift is called a bequest.

BOND, BOND FEE, FINANCIAL BOND

In law, to provide a bond or to be bonded is to pledge good faith in keeping to a contract, responsibility, or obligation. In court, a bond must be backed up by an amount of money to be forfeited should the person making the pledge not follow through properly on his obligation. Such bonds are sometimes called "performance" or "surety" bonds, and certain companies or individuals (bondsmen) specialize in guaranteeing payment of these bonds in case of forfeit. The charge for such a service is called a bond fee.

In finance, a bond is a certificate or evidence of indebtedness. Corporations, governments, and government agencies frequently borrow money by selling bonds and promising to pay the buyer a fixed rate of interest in addition to paying back the full amount of the original debt at some future, specified date.

A bond is considered "secured" if the borrower commits the use of property he owns to pay the lender in the event that he cannot pay in any other fashion. An "unsecured" (or "debentured") bond is not backed by such commitment of property.

A bond is "registered" if the name and address of its owner are kept on record by the issuing agency.

BOOKKEEPING

Bookkeeping, as contrasted with accounting, is the actual recording of business data in a prescribed manner. This is clerical in nature and does not involve design or interpretation as in accounting.

BOOK VALUE

The book value of a piece of property is its value as recorded and published by an acknowledged authority on that type of property. For example, one such authority publishes book values for automobiles according to style and age.

The book value of a share of corporate stock is generally considered to be the corporation's total assets minus its liabilities (this is the book value of the corporation) divided by the number of shares of its stock. The book value of a corporation or of its stock is not necessarily its fair market value.

Compare to: FAIR MARKET VALUE, PAR VALUE.

BROKER

A broker is an agent who is paid a fee for arranging contracts for the purchase and sale of various types of property. The fee is called a commission.

BUY-SELL AGREEMENT

A buy-sell agreement is a contract executed by two or more parties that arranges for the transfer of property (establishing price and terms) on the occurrence of a certain named future event. Buy-sell agreements are commonly executed between partners or major shareholders of small businesses to establish a surviving partner's or shareholder's right or responsibility to buy the decedent's share of the business for a certain price at his or her death. A properly executed buy-sell agreement may also assist in establishing a value for a descendant's share of the business for estate tax purposes.

CALL, CALL PRICE, CALLABLE BOND or PREFERRED STOCK, CALL PROVISIONS

If a borrower calls the bonds he has issued, he redeems them before their maturity, paying the lender the appropriate price - the call price. If preferred stock or bonds are callable as of a certain date, the issuer may redeem them as of that date. Those parts of the agreement between borrower and lender stating date and price of such a redemption are referred to as call provisions. Non-callable bonds or preferred stock cannot be redeemed by the issuer (the borrower) until their maturity.

CAPACITY

See TESTAMENTARY CAPACITY.

CAPITAL, CAPITAL ASSET, CAPITAL GAIN and LOSS

A word with many meanings, the term capital is often used to refer to accumulated property from which income (a return or yield) is expected. In the tax laws, a capital asset is defined as a certain kind of property, most commonly property held for the purpose of investment, such as securities or real estate.

A capital gain or loss is the profit or loss from the sale of a capital asset after comparing the seller's adjusted basis (often original cost) in the asset with the sale price. The profit or loss from a sale of such property is subject to special tax rules for capital gains or losses. These rules are complex, and professional advice is suggested regarding all matters involving capital gain and loss.

In business, the term capital is sometimes used to refer to money originally invested in a business. But capital investment can also mean money invested by a business in machinery or other properties that are bath costly and expected to last; these are sometimes referred to as fixed or capital assets.

CASH, CASH FLOW

Cash is spendable money. A person's or a corporation's cash flow is the amount of spendable money that becomes available over a certain period of time.

CERTIFICATE OF DEPOSIT

A certificate of deposit from a bank is a written note (an evidence of debt) promising the purchaser of the note to pay him or her back at a future date the amount of the deposit plus a stated amount of interest.

CHARITY, CHARITABLE GIFTS

For tax purposes, a charity or charitable organization is a nonprofit, tax-exempt organization. A gift of money or property to such a qualified charity provides a tax deduction to the giver. A list of organizations that qualify for tax-exempt status can be found in the Internal Revenue Service's "Publication 78."

A charitable remainder gift of property is a type of trust in which the creator of the trust or another individual receives the income from or holds the right to use the property until his or her death, at which time the property remaining, if any, passes to the charity.

See TRUST.

CLAIM, CLAIMANT, CLAIMS PERIOD

As a term related to estates, a claim is the calling in of a debt. After an estate is admitted into probate court, it is opened by legal notice to claims by creditors (the claimants) for a certain period of time, the claims period. During this period, all persons and organizations that are owed money by the decedent file and prove their claims for that money with the administrators or executors of the estate. No other distributions from the estate are allowed during the claims period, except funeral and administration expenses and the family allowance to the surviving spouse and/or members of the immediate family. During the claims period, the estate is said to be "open." When the claims period ends, the estate is said to be "closed."

CLOSE or CLOSELY HELD CORPORATION

A close or closely held corporation is a corporation with very few stockholders. The stockholders are usually also the officers of the corporation. Such a corporation (as opposed to one publicly held by many people) generally is not subject to regulation by the United States Securities and Exchange Commission (SEC).

CLOSED END MUTUAL FUND or INVESTMENT COMPANY

See INVESTMENT COMPANY.

CLOSED ESTATE

See CLAIMS.

CODICIL

A codicil is a formally executed addition to or change in the terms of a will, not requiring the complete rewriting of the will.

CO-EXECUTOR, CO-ADMINISTRATOR, CO-TRUSTEE

The prefix "co-" attached to any of the terms above means that more than one person or institution holds the office in common with another.

COLLATERAL, COLLATERAL SECURITY

When applying for a loan, a potential borrower is frequently asked to provide collateral or collateral security to guarantee the repayment of the loan. Such collateral is generally in the form of a pledge of property. For example, a borrower may use stock as collateral for a loan, pledging not to sell it without the bank's approval and pledging to turn it over to the bank if unable to pay back the loan. In most circumstances, the bank will require that the property be held in its custody or that a legal claim (a lien) be placed against the property until the loan is paid.

COMMERCIAL PAPER

Commercial paper is the name for certain types of short term certificates of debt from a corporation. Generally, the corporation promises to pay back the face amount of the certificate (the principal amount) within a year, in addition to paying interest for the period of the debt.

COMMISSION

A commission is the fee charged by a person or institution (a broker) for arranging the purchase and sale of property.

COMMITTEE

See GUARDIAN.

COMMON LAW, COMMON LAW OWNERSHIP

In the United States, common law consists of legal rules or principles based on court decisions as they have established precedents through history and on custom as passed to the United States from English law. Statutory law, on the other hand, results from legislative action. In states ascribing to common law ownership of property in marriage, each spouse owns his or her property separately, unless joint ownership is legally arranged.

Compare to COMMUNITY PROPERTY.

COMMON STOCK

See STOCK

COMMON TRUST FUND

A common trust fund is a fund maintained by a bank for its collective investment as trustee. Trust property from many individual trusts is exchanged for the ownership of shares in one fund. Each participant or individual trust owns a certain number of shares, and the income from the fund is divided and distributed by share. Since the capital (the collected assets) in a common fund is much larger than the capital in most individual funds, the trustee can make substantial investments in a wider range of properties.

COMMUNITY PROPERTY

In a state in which a community property law exists, each partner in a marriage is considered to own one-half of all property accumulated during the marriage (except that coming from inheritance or gift), regardless of which partner was actually responsible for acquiring the property.

Compare to COMMON LAW OWNERSHIP.

COMPLEX TRUST

See TRUST.

COMPOUND INTEREST

See INTEREST.

CONFORMED COPY OF A WILL

A conformed copy of a will is a copy of a will that is identical to the original, except that it has not been signed (executed) by the maker of the will (the testator).

CONSERVATOR

The conservator of an estate or of any property is appointed by the court to care for that estate or property.

CONSIDERATION

To give or receive consideration for an act is to give or receive something of value.

CONTINGENT

To be contingent upon means to be dependent upon. When used to preface the titles "beneficiary," "remainderman," or "executor," for example, the word "contingent" provides that the title will not and cannot be held unless a named future event occurs.

CONTRACT

A contract is an agreement between two or more people or institutions (the parties) that is legally binding and enforceable. Not all agreements are contracts.

CONVERTIBLE BOND or SECURITY

A convertible bond or security is a corporate bond or security that can be exchanged for a stated number of shares of the same corporation's common stock.

CORPORATE BOND

A corporate bond is an evidence of indebtedness sold by a corporation for the purpose of raising money. If the bond is secured, it is backed up by the commitment that corporation property, if necessary, will be used to pay the debt. If it is unsecured (debentured) no such pledge of property is offered; instead, the bond is backed by the credit reputation of the corporation.

See also: BOND, CONVERTIBLE BOND, MORTGAGE BOND.

CORPORATE FIDUCIARY

A corporate fiduciary is an institution (as opposed to an individual) that assumes the responsibility for acting on another person's behalf. For example, a bank serving as an executor is a corporate fiduciary.

CORPUS

See PRINCIPAL.

COST BASIS

See BASIS.

CO-TENANCY, CO.TENANT

See JOINT OWNERSHIP.

COUPON BOND, COUPON, COUPON RATE

A coupon bond is a bond (an evidence of indebtedness) to which certificates (coupons) are attached that must be taken off and submitted to the proper authority for collection of interest due. The coupon rate is the annual rate of interest promised to the owner of the bond.

CREDIT, CREDITOR

Credit is the right to use or borrow money. A creditor is a person to whom a debt is owed.

CURATOR

See GUARDIAN.

CURRENT USE

See PRESENT USE.

CURTESY

Curtesy is the legal right, in some states, that a surviving husband might have to the real property in his wife's estate.

Compare to DOWER.

CUSTODY, CUSTODIAL or CUSTODY ACCOUNT

If one person has custody of another person's property, he or she controls that property with an obligation to protect and maintain it.

A custodial or custody account with a bank is an agency service through which the bank as agent takes responsibility for the physical protection of a customer's investment certificates (securities), for collecting and recording the income from that property on behalf of the customer, for buying or selling securities according to the customer's direction, and for recording gains and losses.

Compare to MANAGING AGENCY, SAFEKEEPING ACCOUNT.

DEATH CERTIFICATE

What is commonly called a death certificate is a legal document from a coroner or hospital officially confirming an individual's death. Copies of the death certificate must be presented to various agencies (the state, the cemetery, the Veteran's Administration if benefits are due, for example) in the course of estate settlement and other post-death formalities. Generally, these agencies will require that the copies of the death certificate be "authenticated": that is, certified by the proper authority as genuine.

See AUTHENTICATE.

DEBENTURE

A debenture is an evidence of indebtedness issued by a corporation. Unlike a secured bond, a debenture is not backed by a pledge to sell specific property should the corporation be unable to pay back the debt.

DECEDENT

A decedent is a person who has died. The term is used frequently in the course of estate settlement.

DECLARATION OF TRUST

A declaration of trust is the acknowledgement or written agreement by one person that he or she is holding property (thus becoming the trustee of that property) for the benefit of another person. If the creator of the trust (the grantor) already holds title to the property, he need not formally transfer it to himself as trustee.

DECREE OF DISTRIBUTION

In probate proceedings, the decree of distribution is the final determination by official court order through which a decedent's estate is passed on (distributed) to his heirs.

DEDUCTIONS, THE MARITAL DEDUCTION

In regard to the annual payment of taxes, a deduction is an amount of money subtracted from income before taxes are figured. In the settlement of an estate, various deductions are allowed in determining the taxable estate. Laws regarding these deductions vary by state and between federal and state governments, but often included are: funeral expenses, administration expenses, expenses of a terminal illness, debts of the decedent, and charitable bequests.

The marital deduction: Under the Internal Revenue Code a person can leave $250,000 or one-half of his or her estate, whichever is greater, to the surviving spouse before federal estate taxes apply. This is called the marital deduction.

Certain general conditions must be met, however, for the marital deduction to be allowed: the surviving spouse must be given certain rights of ownership to the property (including the right to choose to whom it will pass at death) ; the property (or all that remains of it) must be included in the surviving spouse's taxable estate on death; and the property may not be shielded from the surviving spouse's creditors. More specific conditions apply as well and vary according to the facts and circumstances of each individual case.

DEED

The term deed most commonly refers to a document representing ownership of real property.

DEED OF TRUST

See TRUST AGREEMENT.

DEFAULT

To default is to fail to meet legally binding obligations. For example, to default on a loan is to fail to meet required payments.

DEFERRED COMPENSATION

To defer is to delay, and deferred compensation is a method of delaying the payment of currently earned money until a later date, such as retirement. Some forms of deferred compensation are taxed when earned and others are not taxed until distributed to the employee at the later date.

DEMAND DEPOSIT, DEMAND NOTE

A demand deposit is a sum of money placed in a bank account that can be withdrawn at any time without prior notice. A demand note is an evidence of indebtedness that can be presented for payment (redemption) at any time.

DEPRECIATE, DEPRECIATION

Property that depreciates decreases in value. This process is called depreciation. For income tax purposes, to depreciate property is to take a deduction which reflects the decreasing value of the property due to use or natural deterioration.

DEVISE, DEVISOR, DEVISEE

To devise is to give real property by will (in some states, real and personal property). The giver is the devisor; the recipient is the devisee.

Compare to BEQUEATH.

DISBURSEMENT

A disbursement is a payment of an expense.

DISCOUNT

1. In business, to discount is to deduct an amount from a previous or listed price.

2. As a noun, a discount (or discounted price) is a price that is lower than the usual or face value price. Buying a bond at a discount, for example, means paying less for it than it promises to pay back.

3. Compare to PREMIUM.

DISCRETIONARY TRUST

If a trust agreement gives the trustee discretionary powers, it allows the trustee to use his or her judgment (discretion) in distributing or withholding the distribution of trust income and/or principal to the beneficiary(ies) of the trust. Such a trust agreement is sometimes referred to as a discretionary trust.

DISPOSE, DISPOSITION

To dispose of property is to transfer it (sell it, loan it, or give it away). A disposition is the act of such a transfer.

DISTRIBUTE, DISTRIBUTEE

To distribute property is to pass it on to those entitled to it. For example, a probate court distributes or passes estate property on to whomever is legally entitled to it. The trustee of a trust fund distributes or passes income or principal from the trust fund on to the beneficiary of the trust, sometimes called the distributee.

DIVERSIFY, DIVERSIFICATION

If investments are diversified, they are spread into several or many different types of properties so as to minimize the risk of loss should one investment fail. Diversification is the process of spreading investments.

DIVIDEND, EX-DIVIDEND

A dividend is the money or stock that the owners of a corporation's stock receive out of the corporation's profits. When a corporation states that its upcoming dividend will go to the recorded owners of its stock as of a certain date, the stock is said to be ex-dividend as of that date and until the date of the dividend payment. Thus any purchaser of the stock between these two dates will not receive a dividend from the stock until the next dividend declaration.

DOLLAR COST AVERAGING

Dollar cost averaging is a term most commonly associated with investing in stock or a mutual fund. If an individual invests according to the dollar cost averaging method, he or she invests a fixed amount at periodic and regular intervals. The assumption behind the theory is that stock or mutual fund prices tend to rise gradually over the long run (in spite of short term fluctuations), and the result of investing an equal amount regularly will be that the majority of shares will have been purchased when the price was relatively low.

DOMICILE

A person's domicile is his or her principal home, generally accepted as that place which he lists as his address and to which he intends to return after being absent. A domicile is often additionally considered to be where a person votes, spends most of his time, and conducts his personal business. A person may have several residences but is generally considered to have only one domicile.

DOWER, DOWER RIGHT

A wife's dower or dower right is her right in some states to part of the real property in her husband's estate at his death.

Compare to: CURTESY.

ELECTION AGAINST THE WILL

The term election against the will refers to the choice a surviving spouse has in many states regarding the decedent spouse's estate. This choice is also known as the spouse's Right of Election. State laws providing for the election of a spouse against a will allow a surviving spouse who challenges the will to choose to receive a fixed percentage of the decedent spouse's estate rather than the share allocated to the surviving spouse by the will. The process of electing against a will is also referred to as renouncing the will.

ENCUMBER, ENCUMBRANCE

If property is encumbered, it is subject to a legal claim (a lien) the property is not owned entirely free and clear of debt. An encumbrance is such a claim or lien on property.

EQUAL CREDIT OPPORTUNITY ACT

The federal Equal Credit Opportunity Act legislates the right of all citizens to establish credit records and be accorded credit without regard to age, sex, marital status, race, color, religion, or national origin.

EQUITY

In regard to property, equity is the amount or value of property that is not subject to liens or legal claims. For example, a house with a fair market value of $100,000 and with an outstanding mortgage of $75,000 has an equity value to its owner of $25,000.

ESCHEAT

Property in escheat goes to the state because it has been abandoned or because no person is legitimately heir to it.

ESCROW, ESCROW AGENT

Money held in escrow (in an escrow account) is held by a disinterested third party (the escrow agent) until the giver(s) of the money and the potential recipient(s) have carried out an agreed upon action.

ESTATE, PROBATE ESTATE, ESTATE TAX, DISTRIBUTABLE ESTATE

A person's estate is all of his or her money and all of his or her real and personal property. A decedent's probate estate is that part of his estate which passes through the probate court in his will. Certain types of jointly owned property are not part of a decedent's probate estate but rather pass according to the terms on the title to the property. The most common example is a house owned by both husband and wife as joint tenants or tenants by the entirety. A decedent's gross estate is his total property for estate tax purposes. The estate pays an estate tax based upon the taxable estate. Thus, a decedent's estate is itself a taxpayer, managed as such by an administrator or executor. The distributable estate is all property remaining in the estate after deductions and taxes.

ESTATE PLANNING

Estate Planning is the process of creating and preserving one's property during one's lifetime and arranging for its maximally beneficial transfer at one's death. Most frequently, the term is associated with advantageous investment and tax planning without sacrificing personal and family security and welfare.

EX-DIVIDEND

See DIVIDEND.

EXECUTE

As a legal term, the word execute is used in two contexts: (I) the act of signing a document, and (2) the act of carrying out the terms of a document. Thus, to execute a will or contract may mean either to sign it or to carry out its terms.

EXECUTOR, EXECUTRIX, CO-EXECUTOR

An executor (known in some states as a "personal representative") is a person or persons (or institution) named in a will to carry out the terms of the will. The executor, subject to approval and official appointment by the probate court, is responsible for the administration and settlement of the decedent's estate. The executor's responsibilities are many (some are listed under ADMINISTRATOR), and they end when the probate court accepts his final accounting of his financial transactions on behalf of the estate and approves his request for distribution of the estate according to the will. An executor is entitled by law to payment for his services (the executor's fee). The amount generally varies according to the size of the estate, difficulty of settlement, and/or state statute. For income tax purposes, the executor's fee is considered ordinary income to the executor. An executor may waive all or part of the fee. A female executor is technically an executrix.

A co-executor is one of two or more executors of an estate.

See also: ADMINISTRATOR.

EXEMPT

If income is exempt from taxes, no tax is due on that income. Interest income on municipal bonds, for example, is exempt from federal income tax.

EX PARTE

A legal proceeding or order is said to be ex parte when it is undertaken by or for the benefit of one party only and without notice to or opposition by any person who may be opposed to it.

EXTREMIS

Literally, extremis means extreme. The term is generally used to refer to a person so ill or injured as to be beyond recovery. Such a person is said to be ill or injured in extremis - in the extreme.

FACE AMOUNT, FACE VALUE

The face amount of a document such as a bond or insurance policy is the principal amount of the document as shown by the language of the document and not including additional features (such as interest on a bond or disability insurance protection in an insurance policy). With respect to notes and bonds, the face amount is also referred to as the face value.

FAIR MARKET VALUE

Assuming that all relevant facts about a property are known and that the buyer is not forced to buy and the seller not forced to sell, the fair market value of a property Is the amount of money a willing buyer would pay for the property to a seller willing to sell it in an arms length transaction (a transaction unaffected by any relationship between buyer and seller). Frequently, the fair market value of property is determined by referring to the price at which similar property is selling in an open market, such as the New York Stock Exchange.

FAMILY ALLOWANCE

See ALLOWANCE.

FEDERAL ESTATE TAX

See ESTATE TAX, TAXES.

FEE

Most commonly, a fee is a charge for services. In law, fee can mean ownership of land (an estate in land).

FEE SIMPLE, FEE SIMPLE ESTATE

If property is held in fee simple, it is wholly owned by one person, and that person alone has the right to transfer the property in any fashion he or she may choose. A fee simple estate, then, is property entirely owned by one person.

FIDUCIARY

A fiduciary is a person or institution that takes the responsibility of acting on behalf of another person. In reference to wills, estates, and trusts, the following act in a fiduciary capacity for the maker of a will, for his estate, and for his beneficiaries: his attorney(s), executor(s), trustee(s), and any guardian(s) he may name. All are bound by good faith and trust.

A successor fiduciary is that person or institution named to replace an acting fiduciary should he no longer be willing or able to act. An institution acting as fiduciary is sometimes referred to as a corporate fiduciary.

FIDUCIARY INCOME TAX RETURN

When a person or institution acting in a fiduciary capacity files an income tax return for an estate or trust, that return is known as a fiduciary income tax return.

FINAL REPORT and PETITION FOR DISTRIBUTION

When an executor or administrator has completed his work, he summarizes and accounts for his activities in a report to the probate court and asks that the final distribution of the estate be approved. In some states, this reporting is known as the final report and petition for distribution.

FISCAL, FISCAL YEAR

Fiscal means financial, and the term is often used in reference to taxation. While the calendar year ends on December 31, a fiscal year may end on the last day of any month. A fiscal year is an annual accounting period for income tax purposes.

FIXED INCOME SECURITY

See SECURITY.

FLOWER BOND

See U.S. GOVERNMENT OBLIGATIONS.

FORCED HEIRS

Forced heirs are those persons to whom the maker of a will (the testator) by law must give part of his property. For example, if the testator has left his children out of his will and the state law requires that they inherit a certain percentage of his estate, their inheritance may be said to be forced heirship.

FORECLOSE, FORECLOSURE, FORECLOSURE SALE

If a person owning property that is subject to a mortgage fails to meet (defaults on) his mortgage payments, that property is subject to foreclosure by the creditor. To foreclose is to terminate all rights to the property covered by the mortgage. A foreclosure sale is the sale of property covered by the defaulted mortgage in order to pay money owed on the mortgage from the proceeds of the sale.

FUND

To fund is to provide money or property. A fund is a pool of such money or property. A testamentary trust is funded by the passing of that part of a person's estate so directed into the trust.

FUTURE INTEREST

See INTEREST.

GENERATION SKIPPING TRANSFER TAX

The Tax Reform Act of 1976 altered previous law by introducing a tax on certain transfers of assets through the first and on to the second generation heirs of the person who arranged the transfer. For example, the assets of a trust that are directed to go to the grandchildren of the creator of the trust on the death of his children may be subject to tax. The regulations involved are complex, and consultation with professionals is strongly recommended.

GIFT, GIFT TAX, GIFT TAX EXCLUSION

A gift is a voluntary transfer of property from one person to another who accepts it without the giver receiving anything in return. If the gift is to an individual or to an organization not qualifying as non- profit, it may be subject to a gift tax. If such a tax is due, it is computed on the amount of money given or on the fair market value of the property given. The donor (the giver) pays the tax, and the donee (the recipient) does not have to include the amount of the gift in his Income.

A gift tax exclusion applies to annual gifts valued at $8000 or less from one individual to another as long as the gifts are of a present interest (that is, as long as the gift can be used immediately). Such a gift is not subject to gift tax, and there is no restriction on the number of such gifts to different individuals. The exclusion is $6000 annually If the gift is given mutually by husband and wife. Additionally, one spouse may give another a lifetime gift of up to $100,000 in value tax-free.

GOVERNMENT OBLIGATIONS

See U.S. GOVERNMENT OBLIGATIONS.

GRACE PERIOD

The term is used in reference to a time extension for payment of certain types of taxes or debts. The term may also be used with insurance. Look under the insurance glossary.

GRANTOR, GRANTEE, GRANTOR TRUST

A grantor is a person who transfers property to another (the grantee). The, term grantor is sometimes used synonymously with trustor, the person who transfers property in a trust.

The term grantor trust describes a trust in which the grantor retains such a degree of control over the principal or income of the trust that he is considered to be the owner of the assets in the trust and the income of the trust. In such a trust, the grantor is taxed on the trust income even If it is distributed to someone other than the grantor.

GROSS ESTATE

See ESTATE.

GUARANTY

A guaranty is an agreement to perform another person's undertaking should such performance become necessary. For example, to provide a guaranty for a debt is to take responsibility for the payment of another person's debt should that person be unable or unwilling to pay.

GUARDIAN, GUARDIAN AD LITEM

A guardian is a person appointed by the court to control and manage another person's affairs and/or that person's property. Most typically, a guardian is appointed to manage the affairs of a minor until he reaches his majority or of an adult who is incapable of looking after his own affairs. A guardian is limited in his or her power by the court that appoints him. He must submit regular accountings of his actions to the court and must follow the court's direction.

A guardian ad litem is guardian appointed for the purpose and duration of a law suit or similar legal action. In some states, a guardian is known as a "committee" or "curator."

HEIR

An heir is one who is given property (his or her inheritance) either through a will or through state laws (laws of descent or distribution) regarding the distribution of a decedent's property.

HIGHEST AND BEST USE

When property is valued at its highest and best use, it is valued at what it would be worth if used in the most profitable manner.

Compare to PRESENT USE.

HOLD HARMLESS CLAUSE

In a will or other legal document, a hold harmless clause limits or eliminates the liability (financial responsibility) of the person named in the document to carry out its terms. In a will, for example, an executor may be directed to manage the family business until that business is properly transferred; a hold harmless clause in the will could protect the executor from being held personally accountable (liable) for business losses incurred during his management.

HOLOGRAPHIC WILL

A holographic will is a will written entirely by hand by the maker of the will.

HYPOTHECATE

To hypothecate property is to pledge that property as security for a loan without delivering ownership of the property to the creditor (the person to whom money is owed).

INCIDENTS OF OWNERSHIP

Incidents of ownership are often referred to as rights an insured individual may have to a life insurance policy without necessarily completely owning the policy. For example, an individual may give his policy to another but retain the right to borrow money on or cancel the policy, change the beneficiary, change premium schedules, or change the method by which beneficiaries will be paid. All of these rights (in addition to many others not listed) are incidents of ownership of the policy, and if the insured retains any, the value of the policy will most likely be included in determining the value of his estate at his death.

INCOME, TYPES OF INCOME, INCOME BENEFICIARY

Income is the gain earned from capital, labor, or both. Gross income is income before adjustments and deductions have been taken and taxes have been paid. Taxable income is gross income minus allowable adjustments and deductions, with the resulting amount being subject to tax. Net income is generally considered to be the money left after deductions and taxes. Ordinary income is money or property earned that is subject to federal ordinary income tax rates; this may be contrasted with capital gain income, which is income from the sale of capital assets and is subject to tax at special capital gain rates. Fixed income (as from a bond paying a certain rate of interest) is money earned at a rate that will neither increase nor decrease in the future.

More specifically in relation to taxes and taxable income: tax exempt income is income not at all subject to taxation (for example, interest income from a municipal bond); a tax deductible expenditure from income is an expenditure that can be subtracted from gross income before taxation rates are applied (for example, a gift out of income to a qualified non-profit organization or income spent to prepare an income tax return).

In regard to trusts, distributed income is that money earned by the principal of the trust fund that the trustee passes to the beneficiaries of the trust. A recipient of such distributions is an income beneficiary, also known as a life tenant if he or she is to receive the income for life. Undistributed income is money earned by the trust fund that is not passed on to beneficiaries but rather reinvested, thus becoming part of the principal or capital value of the trust.

INCREMENT

An increment is an addition. For example, if a person is required to invest in a mutual fund in increments of $100, he or she must invest at least $100 each time after the first investment.

INDIVIDUAL RETIREMENT ACCOUNT (IRA)

An Individual Retirement Account, commonly abbreviated and referred to as an IRA, is a retirement fund set up by an individual for his or her own benefit. An individual is only eligible]e to establish an IRA if he is not covered by a retirement plan established by his employer. The individual makes deductible contributions to the IRA out of his own money, and the account earns interest tax-free until retirement. The maximum allowable annual contribution depends on individual circumstances, At retirement, the contributor or his beneficiary may receive the balance in the account by one of several methods of payment.

IN EXTREMIS

See EXTREMIS.

INHERIT, INHERITANCE, INHERITANCE TAX

To inherit property is to receive it by will or by applicable state statutes (laws of descent or distribution) at the death of the owner of that property. The property itself is the inheritance. Some states impose an inheritance tax on the recipient (the heir) of an inheritance. In most states however, taxes on property passing at death are the responsibility of the estate, not the recipient, unless the estate is unable to pay the tax.

INSTALLMENT SALE

For federal income tax purposes, an installment sale of property is a sale of the property over a number of years. Under certain conditions, the buyer may pay an agreed upon amount each year (these are the installments) and the seller reports only the proportionate gain from the annual amount received for tax purposes. No more than ~0% of the purchase price can be paid in the first year. Such a sale is most commonly used to spread capital gains income over a period of years rather than being responsible (liable) for taxes due all at once. Installment sales are subject to special Internal Revenue Service regulations.

INTANGIBLE(S), INTANGIBLE PROPERTY

See PROPERTY.

INTEREST, SIMPLE AND COMPOUND INTEREST, INTEREST AS A RIGHT TO PROPERTY

1. In regard to money, interest is a payment for the use of money. Bonds and bank savings accounts are the most common investment vehicles for the payment of interest. Also, most loans require the payment of interest for use of the principal amount.

Simple interest is figured by multiplying the principal amount by the interest rate. For example, the simple interest on $1000 at 5% would be $50. Compound interest involves the number of times the interest rate will be applied over a certain period of time. Interest gained on the first computation is added to the principal amount before the next computation, and this process is repeated until the designated period of time is over.

2. In regard to property, an interest is any legal right to the property - to sell it or live on it, for example - even if the property is not completely owned. A future interest is any such right to property that does not vest (become enforceable) until the occurrence of some future event. A present interest is any such right held now. A life interest is any such right held for life. A reversionary interest is any such right that will go back (revert) to the original owner at a specified date or upon a certain named future event. A proprietary interest is simply a right of ownership.

INTER VIVOS

Inter Vivos means, literally, between living people. For example, an inter vivos gift is a gift from one living person to another. This may be contrasted with a testamentary gift, which is a gift by will; a testamentary gift passes when the maker of the will (the testator) dies.

See TRUST for INTER VIVOS TRUST.

INTESTATE, INTESTACY

To die intestate is to die without having left a will. Intestacy is the state of being without a will. If a person dies intestate, the person's property passes to his or her heirs as required by the applicable state statute (the laws of descent and distribution), regardless of how the person who died may have intended the property to pass.

INVASION OF TRUST

A trust fund is considered invaded if money is taken from the principal amount (the body or corpus) of the trust. Taking money from the principal amount of a trust fund will naturally reduce the income producing potential of the fund.

INVENTORY, INVENTORY ORDER, SUPPLEMENTAL INVENTORY

At his or her death, all of a decedent's property is listed and valued (appraised) for tax purposes. This list is the inventory, and the probate court insists on it by means of an inventory order. A supplemental inventory is a list of items not included in the original inventory and to be added to it.

INVEST, INVESTMENT COMPANY

To invest is to use money to make more money. An investment company (commonly referred to as a mutual fund) will arrange to put an individual's money to work by adding it to sums from other people to invest on a larger and/or more diverse scale than the individual would be capable of achieving alone. The money is managed by the Investment Company or another company retained as its investment advisor. The company sells shares of ownership in its own company which represent ownership of its group of investments.

A "closed end" investment company or mutual fund sells only a fixed number of shares, and these are bought and sold (after the original purchase) in the open market like shares of common stock. An "open end" investment company sells a continuous offering of shares, and the price of a share is determined by the current market value of the company's investments plus, in some cases, a sales charge (or load). Shares of an open end mutual fund may be redeemed (sold back to the company) at any time. The profits from both types of investment company come from the money they make in dividends, interest, and capital gains from their investments.

IRREVOCABLE TRUST

See TRUST.

ISSUE

Generally, when used in wills and in regard to estates, the term issue means descendents.

JOINT AND SURVIVOR

When applied to the ownership of property and its transfer at death, the term joint and survivor means that the survivor will have rights to some or all of the property (depending on the ownership agreement) at the death of the other owner. The term is frequently used in agreements defining joint ownership of real property and employee benefits (such as pensions).

JOINT OWNERSHIP

Joint ownership is the shared ownership of property by two or more people. The three most common types are:

1. Joint Tenancy: all of the property is considered wholly owned by each person, and it passes on the death of one to the surviving owner(s). The entire value of the property is considered part of the decedent's estate and taxed as such.

2. Tenancy by the entirety is allowed in some states for married persons and generally refers to ownership of real property only. The entire property passes to the survivor, and while both are alive, one cannot sell the property without the other's approval. Tenancies by the entirety created after December 81, 1976, are taxed at the death of one owner on half of the value of the property. Since the survivor receives full ownership of the property at the spouse's death, the full value of the property will be taxed in the survivor's estate at his own death if he has not transferred it previously.

3. Tenancy in common (co-tenancy): Each person owns a part of the property and has no interest in (right to) the other's share. Each may sell, give, or will his part as he wishes. At the death of one owner, only the value of his share of the property will be taxed in his estate.

JOINT TENANCY

See JOINT OWNERSHIP.

JOINT WILL

See WILL.

JUDGMENT

In law, a judgment is an official court decision, including in some cases a monetary award to one party for damages.

JUNIOR SECURITIES

See SECURITY.

JURISDICTION

Account's jurisdiction is its geographical region of authority or its legal authority to consider a particular case.

KEOGH PLAN (H.R. 10 PLAN)

A Keogh Plan (also known as an H.R. 10 Plan) is a retirement plan established by a self-employed individual, such as a partner in a partnership. The individual can place a limited portion of his or her income in a Keogh Plan account each year and take a deduction from that year's income for the contribution. The funds contributed to the plan accumulate tax-free each year and are available to the individual at his retirement, or, in the case of his death, to his beneficiary.

LAND TRUST

In a land trust, title to real property is held by a trustee for the benefit of the named beneficiary(jes). The trustee manages the title to the property as directed by the beneficiary. The beneficiary's rights to the property are represented by a certificate, and such a certificate is considered personal property, like a stock certificate.

LAWS OF DESCENT AND DISTRIBUTION

Laws of Descent and Distribution are the laws of each state governing how the real and personal property in an estate will pass to heirs of the decedent if he or she has left no will, or if the will has been declared invalid or has been renounced by the surviving spouse. Technically, laws of descent govern real property, and laws of distribution govern personal property. Such laws are also referred to as statutes of descent and distribution.

LEGACY, LEGATEE

A legacy (also known as a bequest) is a gift of personal property by will. The recipient of such a gift is the legatee.

LETTERS OF ADMINISTRATION

A probate court authorizes the administrator of an estate to begin his or her duties by issuing a formal order or certificate called letters of administration.

LETTER OF DISPOSITION

A letter of disposition is one that a person writes and holds with the will or revocable trust. It is used to dispose of personal property and must be handwritten, signed and dated.

LETTER OF LAST INSTRUCTIONS

Often, the maker of a will (the testator) will write a document separate from his or her will for his survivors, in particular for his family and his executor(s), in which he gives them certain information and instructions, including, for example, a request for a certain type of funeral, the location of his will and other important documents, lists of property, and a description of benefits that are due at his death. Such a document is sometimes called a letter of last instructions; it is not legally binding.

LETTERS OF OFFICE

A court appoints an individual to assume the responsibility of a particular office by letters of office.

LETTERS TESTAMENTARY

A probate court issues letters testamentary to give the person named as executor in a will the authority to administer the estate.

LEVERAGE

As a financial term, leverage is the control of property without having paid for that property in full. The term is most frequently used in regard to real estate transactions in which a down payment controls the property, and the remainder due on the property is borrowed; such property is sometimes referred to as having been leveraged.

LIABLE, LIABILITY

1. If a person is liable for an action, he or she is legally responsible for it. This responsibility includes the obligation to pay for any damages caused by the action.

2. In regard to an individual's or company's financial status, a liability is a debt.

LIEN

A lien on a property is a legal claim against it or an encumbrance on it. Property subject to lien, then, is not held free and clear of debt.

LIFE ESTATE (INTEREST), LIFE TENANT, LIFE BENEFICIARY

A person with a life estate (or life interest) in property has a right to use the property during his or another designated person's lifetime. Such a person is called a life tenant. After the death of the life tenant, the property passes to a predetermined person or persons; it does not pass under the life tenant's will. Frequently, for example, a person gives his or her spouse a life estate in his real property, with the property going to the children at the death of the spouse.

The life beneficiary of a trust receives income and/or principal amounts from that trust for the duration of his own or another designated person's life. The life beneficiary has no authority to direct to whom the principal will pass at his death.

LIMITED POWER OF APPOINTMENT

See POWER OF APPOINTMENT.

LINE OF SUCCESSION

In a will, the line of succession is the instruction as to how property will pass if any person named to receive it (a beneficiary or legatee) dies before the maker of the will (the testator) dies.

LIQUID, LIQUID ASSETS, LIQUIDATE

If property is liquid, it is easily marketable or convertible to cash. Cash in hand is considered property in its most liquid form. Liquid assets are properties that can easily he marketed or converted to cash. To liquidate property generally means to convert it to cash or other easily marketable properties and then distribute the proceeds to the person or persons entitled to them.

LOAD

As an investment company or mutual fund term, a load is a sales charge for purchasing shares.

LOAN VALUE

See CASH VALUE.

LUMP SUM

To receive a payment in a lump sum is to receive it all at one time.

MAKER

The maker of a document is the person who executes it - that is, the person who signs it. The maker of a note (an IOU), for example, is the person who signs for the responsibility to pay back the amount borrowed.

MANAGING AGENCY, INVESTMENT MANAGEMENT ACCOUNT

A managing agency holds and manages a person's business interests. Many banks offer an investment management account as an agency service for their customers. The customer gives the bank, as agent, certain authority to transact investments on his behalf.

Compare to CUSTODIAL ACCOUNT, SAFEKEEPING ACCOUNT.

MARGIN

To maintain a margin account with a stockbroker is to have the ability to purchase securities on credit given by the broker. Margin is the sum of money or its equivalent placed with the broker by the customer, to be held against losses the broker might incur due to future fluctuations in the market price of the stock. For example, if the market price of stock bought on margin declines below a certain level, the customer must either give the broker more money as security for the loan or permit the broker to sell some of the stock and use the proceeds as additional security.

MARITAL DEDUCTION

See DEDUCTIONS.

MARKET VALUE

See FAIR MARKET VALUE.

MARSHAL, MARSHALING ASSETS

To marshal is to arrange in order. In estate settlement, when assets are marshaled, they are arranged so that they may be properly allocated to meet claims against the estate and to carry out the distribution of estate property.

MATURE, MATURITY

When a bond or note (an IOU) matures, the principal amount becomes due the holder. The date of maturity on a bond or note is the date on which the borrower promises to pay the principal amount back to the lender.

MONEY MARKET, MONEY MARKET FUND

The term money market describes the trading of short term certificates of debt-treasury bills and commercial paper, for example.

A money market fund is a type of investment company or mutual fund that purchases various short term certificates of debt and then sells shares of ownership in its collected portfolio.

MORTGAGE, MORTGAGE BOND

A mortgage is a legal claim to real property that serves as security for a loan. Should the borrower not repay the loan, the property can be claimed by the lender.

A mortgage bond is a certificate of debt that is backed up by a lien or mortgage on a certain piece of property. The issuer of the bond commits the use of one or more mortgages he holds to pay back the debt if he cannot pay it back by other means.

MUNICIPAL BOND

A municipal bond is a certificate of debt issued (sold) by a state or local government or government agency. Generally, the interest paid on such bonds is exempt from federal income tax, and with some exceptions state and local taxes as well.

MUTUAL FUND

See INVESTMENT COMPANY.

NEGOTIABLE

If a check, bond, or note (an IOU) is negotiable, it may be used by the holder to receive cash or to pay a debt. For example, a check made out to cash and properly endorsed is negotiable.

NET INCOME, NET WORTH

Net income is income after taxes. A person's net worth is the value of his properties (his assets) minus the amount of his indebtedness (his liabilities).

NON-PROFIT ORGANIZATION

Within annual limits, money given to qualified non-profit organizations can be deducted from income for tax purposes. In an estate all money left to qualified non-profit organizations is exempt from taxes. Most churches, charities, educational institutions, and scientific research foundations qualify as non-profit institutions. A list of qualified non-profit organizations can be found in the Internal Revenue Service's "Publication 78."

NOTARY

A notary is someone who is registered with local authorities and authorized to witness signatures on contracts and other various documents. This takes the place of having to gather witnesses when signing certain documents. Wills still require witnesses in most states.

NOTE

As a financial term, a note is a certificate of indebtedness-an IOU.

NOTICE TO CREDITORS

Early in probate proceedings, the court orders that legal and public notice be given as to the fact that an estate is in probate, naming the executors or administrators and attorneys for the estate, and announcing where claims can be filed against the estate. Such a notice is sometimes referred to as the notice to creditors.

ODD LOT

In the stock market, an odd lot is an order for less than 100 shares.

OPEN END MUTUAL FUND or INVESTMENT COMPANY

See INVESTMENT COMPANY.

OPEN ESTATE

An open estate is an estate still honoring claims by creditors.

OPTION

As an investment term, an option is the right to buy property at a certain price for a certain period of time.

See STOCK OPTION.

ORPHAN'S COURT

See PROBATE COURT.

OVER THE COUNTER

Many stocks are not listed on a stock exchange. When such stocks are bought and sold, they are said to be traded over the counter. A stockbroker himself will bring together buyer and seller instead of using an exchange. The brokerage house creates and maintains a market in the particular stocks.

PAPER PROFIT or LOSS

A paper profit or loss on the sale of a property is the figured gain or loss from the sale that would occur if the property were sold.

PAR VALUE

The par value of a bond is the amount of money the issuer promises to pay when the bond matures (becomes due for payment) ; this is the same as the principal or face value.

PENSION, PENSION PLAN

A pension plan (often referred to as a defined benefits plan) is a plan, fund, or program which provides retirement income (the pension) to employees when they reach retirement age. Whether or not benefits (in whole or in part) will continue to a surviving spouse on the employee's death will depend on the provisions in the plan.

PER CAPITA

Per Capita literally means 'by the head.' If by will an estate is to be distributed equally per capita, each named individual will receive an equal share of the estate property.

Compare to PER STIRPES.

PERPETUITY, RULES AGAINST

If something exists in perpetuity, it exists forever. Trusts with individual beneficiaries (as opposed to qualified non-profit organizations) are prohibited by law from existing in perpetuity. By common law, the life of a trust is limited to the lives of those beneficiaries now living, plus twenty-one years, plus nine months (any period of gestation that is in existence at the end of the twenty-one years).

PERSONAL REPRESENTATIVE

Personal representative is the name used in some states for that person or institution appointed by the probate court to settle an estate. A personal representative's duties are the same as those of an administrator or executor.

See ADMINISTRATOR, EXECUTOR.

PER STIRPES

Per Stirpes literally means 'by the roots'. If by will an estate is to be distributed equally per stirpes, an equal share of the estate property is given to each named family branch regardless of how many people are in each branch.

Compare to PER CAPITA.

PETITION FOR PROBATE OF WILL

In some states, the legal request that a will be admitted into probate court is called a petition for probate of will.

PLEDGE, PLEDGED PROPERTY

To pledge property is to deliver the property to a creditor as security for a debt. The property delivered to the creditor and subject to the debt is called pledged property.

PORTFOLIO

As a financial term, a person's or institution's portfolio is the total of all investments or the collection of investment assets.

POWER OF APPOINTMENT

Power of appointment is generally the right conferred by one person by will or deed of trust upon another to designate who will receive the benefit of property, either presently or after those named to receive it in the will or trust agreement have died. "Limited" power of appointment restricts the designation to certain people or classes of people. "General" power of appointment includes no such restriction.

POWER OF ATTORNEY

If one person gives another person power of attorney, he or she authorizes that other person (sometimes called an attorney-in-fact) by written document to act in his place in some or all legal matters-for example, to buy or sell his property for him. The scope of authority granted is specified in the document and may be limited by statute in some states. Power of attorney is terminated on the death of the person granting the power unless the power of attorney is coupled with an interest.

PRE- and POST-NUPTIAL AGREEMENT

See AGREEMENT.

PREFERENTIAL BENEFICIARY

See BENEFICIARY.

PREFERRED STOCK

See STOCK.

PREMIUM

1. To buy property at a premium is to buy it at a price above its par, listed, or face value. The premium itself is the amount over par that one pays.

2. In life insurance, a premium is the amount of money the buyer of the policy pays for the insurance.

PRESENT INTEREST

See INTEREST.

PRESENT USE

Property valued at its present (or current) use is valued for what it is worth as it is currently being used.

PRETERMITTED HEIR

A pretermitted heir is a child omitted from a will by the maker of the will (the testator). In some states, if a child is considered to be unintentionally omitted from the will, that child shares in the estate as if the testator had died without a will.

PRINCIPAL

1. The principal value of property is the value of the property not including income or debts.

The principal amount of a loan is the amount borrowed, not including interest due. In a trust, the principal amount is all the capital the property that produces income. It may also be called the trust fund, corpus, or res.

2. In an agency arrangement, the principal is the person who authorizes the agent to act. In an investment, a principal is a major or original investor.

PROBATE, PROBATE COURT

The court process of probate specifically involves the validation of a will as the genuine and legally acceptable last directions of the maker of the will (the testator) and the carrying out of those directions. Most commonly, a state will have a special court which handles estates and probate proceedings. This court is called probate court in most states and by other names in other states (for example, surrogate or orphan's court).

PROFIT, PROFIT SHARING PLAN

A corporation's profit is its income minus its expenses. Its net profit after taxes is its income minus all expenses and taxes. Some corporations offer a profit sharing plan (often referred to as a defined contribution plan) to their employees as a retirement benefit. Each year, the corporation may contribute a certain amount out of its profits in the name of each participating employee for his or her use at retirement. Whether or not the benefits of a profit sharing plan (in whole or in part) are payable to a surviving spouse on the employee's death will depend on the provisions of the plan and the instructions of the employee.

PROPERTY

A person's property is that which he or she owns. Real property (also known as real estate or realty) is land and the buildings or other fixed improvements on that land. Personal property (personalty) is all property that one owns except real property.

Intangible property is an evidence or symbol of ownership or debt: for example, a stock certificate, a bond, a deed or title, or a life insurance policy. Tangible property is the property itself, not just evidence of it.

PROPRIETOR, SOLE PROPRIETOR, PROPRIETARY INTEREST

A proprietor of a property has certain ownership rights to that property. A sole proprietor has complete and exclusive rights of ownership to the property. A proprietary interest in property is any ownership right to the property.

PRORATE

If the value of property is prorated, that value is altered by a certain fixed percentage. For example, if an automobile owner paid $500 for a year's insurance, and he terminated the policy before the end of the year, he would be entitled to a refund of a percentage of his $500. This prorated refund would be determined by a standard schedule that applied uniformly to such terminations. Property values can be prorated according to time held and/or degree of use.

PROVISIONS

The statements in wills or trust agreements directing how property is to be cared for or transferred are called provisions.

PROXY

To vote by proxy is to authorize another person or persons to vote in one's place. Corporations, for example, accept votes by proxy from stockholders who are unable to attend annual meetings. On such a proxy, a stockholder signs over his or her voting power to a named individual or individuals.

PRUDENT MAN RULE

Trustees (as fiduciaries) must manage trust property in accordance with the prudent man rule. This requires the trustees to handle the trust property with the same care that a prudent, honest, intelligent, and diligent man would use to handle the property under the same circumstances. If a trustee is accused of mismanaging the assets, the court will often judge his conduct by applying the prudent man rule as the standard against which to measure his actions.

REAL ESTATE, REAL PROPERTY, REALTY

See PROPERTY.

REAL ESTATE INVESTMENT TRUST (R.E.I.T.)

Similar to an investment company or mutual fund, a Real Estate Investment Trust (R.E.I.T.) is a corporation that invests in real property for the benefit of its shareholders.

REALIZE, REALIZED PROFIT or LOSS

To realize income is to receive it in cash. To realize a profit or loss from an investment is to receive a gain or loss of money from the sale of the investment.

Compare to PAPER PROFIT or LOSS.

REDEEM, REDEMPTION

To redeem is to buy back. The redemption of stock is the repurchase of the stock from the stockholder by the corporation that issued it. Similarly, when a bond is redeemed, the issuer of the bond pays the principal amount back to the holder of the bond.

REGISTERED BOND

See BOND.

Some states have a register of wills who acts as a clerk of the probate court. A register of wills records and preserves wills admitted to probate, issues letters testamentary and of administration, and receives and files accounts from executors and administrators.

RELEASE

A release is the giving up of a right, claim, or privilege by one person to another person against whom it might have been demanded or enforced. Frequently when disputes are settled the conflicting parties exchange releases.

REMAINDERMAN, CONTINGENT and VESTED REMAINDERMAN

The remainderman of a trust receives the principal (the income producing capital) of that trust when the income beneficiary or life tenant dies. A contingent remainderman receives the principal of the trust only on the occurrence of a specified future event, for example, if that person named remainderman before him dies first. A vested remainderman is one whose future right to a certain trust principal is fixed and unalterable.

RENOUNCE THE WILL

In most states a surviving spouse can renounce the will of a testator spouse (the maker of the will) by refusing to probate the will and electing to have the estate distributed under state laws of descent and distribution governing the administration of estates without a will.