Estate Planning terms S

S Corporation: A corporation where income is taxed only at the shareholder level. Must meet requirements as to kind and number of shareholders, classes of stock, and income sources.

Section 2503(c) Trust for Minors: A trust that complies with Section 2503(c) of the Internal Revenue Code. A gift placed in such a trust for the benefit of a minor qualifies for the annual gift tax exclusion even if they are not gifts of a present interest.

Section 303 Stock Redemption: Permits a shareholder’s estate or heirs to sell to sell enough of his or her stock to cover death taxes, costs of estate administration, and funeral expenses without the corporation's distributions being considered as dividends for income tax purposes

Section 401(k) Plan: Qualified profit sharing or thrift plan that permits participants to have their salaries reduced up to some maximum limit and deposit that money instead in the employer's Section 401(k) plan. Usually allows a beneficiary to be designated and passes outside of probate.

Section 457 Plan: A plan that excludes from the participant’s gross income, the part of his or her salary deferred under the plan of a state or local government, a tax-exempt organization (excluding churches), or of an independent contractor of such government or organization. Usually allows a beneficiary to be designated and passes outside of probate.

Section 6166: A section of the Internal Revenue Code that allows qualified estates (closely held businesses or farms) to spread out the payment of estate taxes over 14-years.

Secular Trust: Irrevocable trust that pays tax separately from the company.   Assets are taxable to the trust beneficiary. Inaccessible in the event of bankruptcy.

Separate Property: Property in a state following the community property system that remains the exclusive property of the husband or the wife and is not shared.
Settlement Option: Ways that life insurance policy proceeds can be paid. Includes lump sum with interest, fixed period, fixed amount, and life income options.

Simplified Employee Pension (SEP) IRA: Retirement program for the self-employed or small business owners that allow deferral of taxes on retirement investments. Usually allows a beneficiary to be designated and pass outside of probate.

Sound Mind: When making a will, a testator has a sound mind if he or she: (1) understands the implications of writing a will, (2) knows the properties subject to the will, (3) understands how the property is proposed to be disposed, and (4) knows who the recipients of the property are. A testator’s sound mind is based on his state of mind at the time the will is executed.

State Death or Inheritance Taxes: State imposed tax on the transfer of property to another at your death. California currently does not impose a state-level inheritance tax.
Statute of Limitations: A statute that bars lawsuits on valid claims after a certain time period has elapsed. Varies by state law and for different kinds of claims.

Step Up In Basis: Adjustment of an asset’s value at the time of inheritance if it has appreciated in value since the time it was originally purchased. Reduces the capital gains tax on the asset’s recipient in the event that it is sold. Special rules apply in 2010 which limit the step up in basis at death to $1.3 million.

Stock Appreciation Rights Plan (SAR): A right of an employee to receive cash and/or stock equal to the growth of the company's stock after the stock appreciation right (SAR) is given. Generally no tax consequences to the employer or employee at the time the right is granted. Employee ordinarily gets to decide when to exercise the SAR.

Stock Bonus Plan: Method of executive compensation whereby company stock is issued in place of or in addition to cash bonus. Executive is taxed on stock value as ordinary income. The bonus is deductible by the employer if it is reasonable compensation for services rendered.

Stock Redemption Plan: Plan where the business agrees to buy the interest of a deceased or departing owner. The price is agreed upon before hand or based on an agreed-on formula.

Succession: Transfer of asset ownership through inheritance, gifting, preferential sale, or some other means based on the wishes of the present owner(s) of the assets.

Suicide Clause: Provision in a life insurance policy stipulating that should the insured commit suicide within two years of the policy issuance, only the premiums will be refunded and the face amount of insurance will not forfeited.

Supplemental Executive Retirement Plan: A non-qualified deferred compensation plan for company executives. Promised benefits are paid from the employer's general assets.

Surrender Charge: Fee charged to policy owners if life insurance policies or annuities are exchanged for its cash value.
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