Glossary of Terms
Asset Allocation
The systematic distribution of investments among different kinds of assets, such as stocks, bonds and cash, to optimize the balance between risk and reward in the portfolio, based on the investor’s specific situation and goals.
Beneficiary
A person or entity that you name as a recipient of assets. This could be from a trust, IRA designation, life-insurance designation, a payable on death account or your estate.
Bond
A debt instrument that is a “promise to pay” issued by corporations, federal and state governments, and municipalities to raise capital. The bond issuer promises to pay the holder of the bond the principal amount of the loan when the bond matures and a fixed rate of interest periodically during the term of the bond.
Codicil
An addition or other change to an existing will.
Common Stock
Units of ownership that give voting rights to shareholders.
Death Taxes
A general term used to refer to taxes against property or the transfer of assets upon the death of the owner, including all estate and inheritance taxes. Sometimes referred to as estate taxes.
Deduction
For tax purposes, the portion of an estate that does not generate tax (such as a marital deduction).
Diversification
The practice of investing among several categories of investments (including different industries, countries, or investment vehicles) to enhance return and reduce risk.
Dividend
Periodic distribution of earnings to stockholders, in the form of cash or additional shares of stock.
Executor/Personal Representative
The individual named in a will charged with carrying out the provisions specified in the will. A co-executor serves as executor along with one or more designated individuals.
Fiduciary
An individual or institution responsible for acting in the best interests of another party. A fiduciary is bound by law and duty to put aside personal interests and act in good faith when making decisions for the benefit of another.
Fixed-Income Securities
Debt obligations issued by corporations, governments, or government agencies which pay a fixed rate of interest over a defined time period. Bonds and certain mortgage-backed securities are the most common examples of fixed-income investments.
Grantor
An individual who gives property outright or in a trust.
Income Stock
Common stock that pays dividends at a higher-than-average rate, resulting in a higher yield for stockholders. Income stock frequently is preferred by investors who seek current income in addition to growth.
Intestate
Dying without a will.
Investment Management Account
An account whereby a financial institution is given discretionary power with regard to investment decisions on behalf of the investor.
Investment Objective
The identified goal of the portfolio based on an investor’s time horizon, risk tolerance, liquidity requirements, return expectations and income needs. The investment objective that best fits the client’s risk and return objectives is assigned after discussion and review with the client.
Irrevocable Trust
A type of trust that cannot be revoked or changed in any way.
Invasion of a Trust
Refers to a distribution of assets made from the principal of a trust
Living Trust
A trust which is in effect during the life of the settlor, rather than upon his death (testamentary trust).
Money Market
The market for short-term debt instruments. Money market investments include Treasury bills, short-term certificates of deposit, commercial paper, and other, similar instruments.
Money Market Funds
Refers to mutual funds investing solely in money market instruments.
Mutual Fund
An investment company that enables investors to pool their funds in order to invest in a managed portfolio of securities.
Payable on Death
A designation for certain types of accounts where assets can pass directly to a named beneficiary to avoid probate.
Power of Appointment
The power given by an individual to another in a will or trust document to determine which persons will receive an interest in his or her estate.
Preferred Stock
A class of stock that has preference over common stock in the event of the liquidation of a company’s assets. Typically, preferred stockholders do not have voting rights. (See Common Stock.)
Probate
The process through which a will is proved to be valid.
“Prudent Investor” Rule
Legal term that refers to the duty of the fiduciary to invest and manage assets in the best interests of another.
Remainderman
In the case of a trust, this term refers to the individual who will receive the principal of a trust when final distribution takes place.
Required Minimum Distribution (RMD)
The minimum amounts you must withdraw from your retirement accounts each year. RMDs can start various years depending on your age and are calculated using life expectancy tables from the IRS.
Revocable Trust
A type of trust that can be terminated by the settler (the opposite of an irrevocable trust).
Successor Trustee or Executor
An individual or institution taking the place of a trustee or executor unable to continue the responsibilities designated in the trust agreement or will.
Tax-Deferred Investments
An investment whose earnings are not subject to state or federal tax until the investor assumes possession of them. Individual Retirement Accounts are common examples.
Testamentary Trust
A type of trust that is established under the will of a deceased individual.
Testate
Making and leaving a valid will; an individual who dies without having made a will is said to have died intestate.
Trust
A legal, fiduciary relationship in which an individual or institution (the trustee) holds legal title to property with the responsibility for keeping or managing this property for the benefit of another person or beneficiary.
Trust Agreement
A legal document that establishes a trust and outlines the rules and guidelines affecting its management and disposition.
Trustee
The individual or institution with responsibility for management of property placed in trust for the benefit of another individual.
Will
A legal document expressing the wishes of an individual regarding distribution of his or her property after death.
some of the above are courtesy of Northern Trust; used with permission