Glossary of Family Finance Terms
By: Jane Irene Kelly Source: AARP Bulletin Today Date Posted: June 2002
assets: anything of value, such as a house, car, stock portfolio, coin collection, jewelry, trust fund, savings account or insurance policy.
beneficiary: the individual, institution, estate or trustee named as the recipient of an individual's death benefits from sources such as insurance policies, pensions or other retirement plans, like a 401(k).
cash flow: income minus expenses.
estate planning: the development of instructions and documentation so that others can manage a person's assets if he/she dies or becomes incapacitated. Estate planning can include writing wills, naming beneficiaries, creating trusts and preparing for funerals.
financial advisor: a licensed professional who provides objective advice about one or many aspects of your finances and who also may manage some of your assets. Different types of financial advisors—tax advisors, accountants, investment managers, attorneys—offer different kinds of expertise. To start, couples may want to meet with someone who offers a no-strings-attached, fee-based consultation for guidance on what types of financial advice they need and what type of advisor(s) can best provide it.
living trust: a legal document which specifies how certain assets are managed and allows the creator to manage them (act as the trustee) during his/her lifetime. If the creator becomes incapacitated, a named successor trustee can take over the trust. This arrangement can be amended, or even terminated, during the creator's lifetime. If the trustee dies, the living trust outlines how assets in the trust should be distributed. However, unlike the process with a will, these assets do not have to go through probate because the trust is considered to be the "owner" of the assets. [See also, trust.]
long-term care insurance: insurance designed to cover the cost of care for those who become disabled, or seriously ill, for a long period of time.
net worth: the value of a person's assets (income and property) minus his/her liabilities.
nuptial agreements: legal documents created before a marriage (pre-nuptial) or during a marriage (post-nuptial) that specify how assets should be divided between spouses—and other family members, if appropriate—in the event of a divorce. For example, a nuptial agreement can guarantee that a child from a previous marriage receives a certain piece of real estate, or other investment, that a new spouse or new children cannot lay claim to in the event of a divorce.
power of attorney: a legal document that grants a designated person the right to act on behalf of another. A "special power-of-attorney" designation grants specific and limited powers, such as the authority to sign checks. A "general power-of-attorney" designation covers all business activities.
probate: the process of verifying the validity of a will and administering the estate according to the terms of that will. The first step is to appoint an executor, if one has not been designated already. Estates go into probate if no will exists.
trust: a legal document which specifies the terms and conditions for managing certain assets—and designates a person to manage (act as a trustee of) those assets. The trustee is responsible for making sure that assets are managed properly and ultimately administered to beneficiaries of the trust, as outlined by the person who created the trust, typically referred to as the trustor, settlor or donor.
will: a legal document that specifies how an individual wants his/her property disposed of, or distributed, following death. Wills can be amended, or completely revoked, during a person's lifetime.
Compiled by Jane Irene Kelly, a freelance journalist based in Mill Valley, Calif.
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