PFM Ch. 15

equity (in a house)

the property's value minus the mortgage balance. increases while while the mortgage decreases

reverse mortgage

a loan against the equity in the borrower's home. the lender makes tax-free monthly payments to the borrower.

current market value

the amount for which you could sell your home now

assessed value

what the county or taxing authority has determined your property is worth for tax purposes

appraised value

what a real estate appraiser believes your property is worth compared to similar properties that have recently sold in your area

heir

a person who will inherit property from someone who dies, e.g. spouses, children

Medicare

government-sponsored health insurance for the elderly

estate

all that a person owns, less debts owed, at the time of the person's death

decedent

the person who died

estate planning

involves preparing a plan for transferring property dring ones lifetime and at one's death, to minimize taxes, make known how you want possessions distributed, and provide for a smooth transfer of them

will or testament

a legal document that tells how an estate is to be distributed when a person dies

executor or person executive

someone who you name to carry out your wishes when you die

testator

the person who makes the will

simple will

a short document that lists the people whom you want to be your heirs and what you want each to receive

holographic will

a will written in a person's own handwriting, valid in 19 states and should be witnessed

intestate

when people die without a will

codicil

a legal document that modifies parts of a will and reaffirms the rest

trust

a legal document in which an individual gives someone else control of property, for ultimate distribution to another person

trustor

person who gives someone control of property

trustee

a financial institution or a person who is given property by the trustor to hold for ultimate distribution to the beneficiary

beneficiary

the person who eventually receives the property in the trust from the trustor and trustee

inter vivos

a living trust, existing during the lifetime of the trustor

trust will or testamentary trust

takes effect upon the death of a trustor

probate

a court-supervised process of paying your debts and distributing your property to your heirs upon your death, requires an attorney

joint tenancy

a convenient and automatic way to pass property that involves having joint ownership of property

power of attorney

a legal document authorizing someone to act on your behalf

estate tax

a tax on property transferred from an estate to its heirs, paid from the assets of the estate before anything can be distributed to heirs (DEDUCTED FROM THE VALUE OF THE ESTATE)

inheritance tax

imposed on an heir who inherits property from an estate (HEIRS PAY THIS ON THE PROPERTY THEY RECEIVE)

life estate

allows you to pass title to real property to a loved one but retain your right to live on the premises for as long as you live

gift tax

applied to a gift of money or property, paid by the giver (gifts to charity or spouse are exempt)

individual retirement account (IRA)

a retirement savings plan that allows individuals to set aside up to a specified amount each year and delay paying tax on the earnings until they begin withdrawing it at age 59 and a half or later

traditional IRA

allows you to deduct your contribution each year from your taxable income

Roth IRA

a type of IRA where contributions are taxed, but earnings are not

education IRA

a trust created for the purpose of paying higher education expenses; for people who have children under age 18, contributions are not deductible

Keogh plan

a tax-deferred retirement savings plan available to self-employed individuals and their employees

Simplified Employee Pension (SEP) plan

a tax-deferred retirement plan available to small businesses. easier to set up than Keogh plans.

annuity

income from an investment paid in a series of regular payments made for a set number of years

tax-sheltered annuities (TSAs)

annuities that have become popular because of the tax-free buildup of interest or dividends during the time the annuity contract remains in effect

defined benefit plan or pension

a company-sponsored retirement plan in which retired employees receive a set monthly amount based on wages earned and number of years of service

vested

entitled to the full amount in the defined-benefit plan, after working for the company for a specified number of years

The Employee Retirement Income Security Act of 1974 (ERISA)

sets a minimum standards for pension plans in private industry and protects millions of workers from inadequately funded pension plans

defined-contribution plan

a company-sponsored retirement plan in which employees can receive a periodic or lump-sum payment based on their account balance and the performance of the investments in their account, e.g. 401(k) and 403(b)

401(k) plan

a defined-contribution plan for employees of companies that operate for a profit

403(b) plan or a tax-sheltered annuity

a defined-contribution plan for employees of schools, non-profit organizations, and government units