Trust and Estate Terms

The following is a glossary of terms that are commonly used in Trusts and Estates matters:

A beneficiary is the person who derives advantage or benefits from something. In this case, beneficiaries are named in a trust or a will to receive assets, real property, or anything left to them.  There are also opportunities for loans to trusts for beneficiaries of trusts.

Change in Ownership:
Ownership of real property transferred from one person or entity to another.

Additional borrower whose name appears on loan documents and is obligated to repay the loan.

Conventional Lender:
Loan that meets the lending criteria of the Federal National Mortgage Association (FNMA “Fannie Mae”) or Federal Home Loan Mortgage Corporation (FHLMC “Freddie Mac”).

“Tenants in Common” share a specified proportion of ownership rights of real property.

Disproportional Distribution:
One or more heir(s) / beneficiary(ies) receives a larger portion of the distribution of an estate / trust.

To create a claim, limitation on, or liability against real property.

Equitable Encumbrancer:
The person with a legal claim against an estate / trust. The person with a lien on real property.

The difference between the value of real property and anything owed against the real property.

All the assets owned by a particular person (less debt) at death.

Estate / Trust Distribution Worksheet:
The final accounting of the assets & liabilities for the distribution of an estate or trust.

Estate Planning:
Estate Planning is the process by which an individual or a family arranges the transfer of assets in advance of death. Typically an estate plan attempts to preserve as much wealth as possible for the beneficiaries included in the estate plan. An estate plan is important because without an estate plan a will or trust, the laws in your state will determine what happens to your property. Additionally, your state courts will decide who receives custody of your children and anyone you are a guardian of.

A person or institution appointed by a testator to carry out the terms of their will.

First Right of Refusal:
A contractual right that gives its holder the option to buy real property.

One that guarantees the repayment of a loan.

Irrevocable Trust:
Type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiary(ies).

Letter to Assessors (LTA):
Board of Equalization’s summaries of court rulings, legal opinions, highlights of enacted legislation, Property Tax Rules and technical bulletins for assessment problems.

Non-Pro Rata:
Each heir / beneficiary receives an equal portion of the entire estate / trust, but not necessarily of each asset.

Option to Purchase:
Opportunity to purchase a piece of real property.

Per Stirpes:
An estate / trust is distributed “per stirpes” if each heir / beneficiary is to receive an equal share of the estate / trust.

Pro Rata:
Each heir / beneficiary receives an equal portion of each asset in an estate / trust.

Probate is the official proving of a will.

Promissory Note:
A signed document containing a written promise by one party to repay a stated sum to another party.

Proportional Interest:
The interest of one heir / beneficiary divided by the total number of heirs / beneficiaries.

Proposition 13:
California Proposition 13 is a California Constitutional amendment enacted in 1978. Proposition 13 limits the tax rate increase that can be charged annually on real estate in California. The proposition decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to exceed 2% per year. California Proposition 13 also prohibited reassessment of a new real estate property tax base year value except for in cases of either change in ownership, or completion of new construction. California would later pass Proposition 58 and Proposition 193 which in some cases permits the low Proposition 13 tax base to be passed to an heir or member of a trust.

Proposition 19:
California Proposition 19 is the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act. Prop 19 was approved by California voters on November 3, 2020. California Proposition 19 takes effect on February 16, 2021. Proposition 19 modified California Proposition 58 by requiring that the child or children use the residence as their principal residence in order to avoid property tax reassessment. Additionally Prop 19 put a cap of $1,000,000 on the amount of property value that can be excluded from reassessment.

Proposition 58:
California’s Proposition 58 became effective on November 6, 1986.  With certain limitations, Prop 58 allows for the exclusion for reassessment of property taxes on transfers between parents and children. Proposition 58 is codified by section 63.1 of the Revenue and Taxation Code. In the State of California  when real estate or real property is reassessed at market value if it is sold or transferred. Property taxes can sometimes increase dramatically as a result. If the sale or transfer is between a parent and their child, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is filed in a appropriate amount of time. Proposition 58 allows the child inheriting the home to avoid property tax increases when acquiring property from their parents. The child’s taxes are instead calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired. May work in concert with loans to trusts for beneficiaries of trust.

Proposition 193:
Effective March 27, 1996, Proposition 193 is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer. Proposition 193 is also codified by section 63.1 of the Revenue and Taxation Code. California Proposition 193 provides some of the same exclusions as California Proposition 58.

Revocable Trust:
A revocable trust is a type of trust where its terms can be modified, amended or terminated dependent on the grantor.

Security Interest:
Enforceable legal claim or lien on real property.

Share / Share Alike:
Each heir / beneficiary receives an equal portion of the estate / trust.

Statutory Powers:
Legal powers given by a statute.

The person who made a will.

An arrangement whereby a person or entity (trustee) holds assets as its nominal owner for the good of one or more beneficiaries.

Trust Residue:
All of the property that is left after specific gifts are distributed from a trust.

An individual or entity given control or powers of administration of assets in a trust.

The person(s) that created a trust (aka “settlor” or “grantor”).