Estate planning involves dealing with laws and legal instruments, and when you enter that arena you are invariably going to see terms that are long and sometimes unfamiliar to the layman. Lengthy descriptive phrases that are commonly used are often shortened by turning them into acronyms, and this jumble can make matters even more confusing. Below are some acronyms that you often see associated with estate planning along with a brief explanation of what it is that they represent.
In the parlance of estate planners POA stand for “power of attorney.” This is a legal instrument that is used to name someone to act in our behalf under certain circumstances. Estate planning attorneys often recommend durable financial powers of attorney and durable medical powers of attorney to their clients.
POD & TOD Accounts
POD stands for “pay on death,” and TOD stands for “transfer on death.” With these accounts you name a beneficiary and he or she will assume direct ownership of the assets in the account after your death and probate will avoided. POD and TOD accounts can be opened at a bank, but in many states you can create a transfer of death brokerage account as well.
An IRA is an “individual retirement account.” With traditional individual retirement accounts you can make deposits before the money has been taxed, but when you withdraw the funds upon retirement it will be taxed as income. With Roth IRAs you contribute money into the account after it has been taxed, but transactions within the account are not subject to taxation and you usually pay no taxes on money you withdraw from the account.
In the realm of estate planning QPRT stands for “Qualified Personal Residence Trust.” With these instruments you place your home into the trust with your heirs as the beneficiaries, but you can live in the house rent-free for a period of time that you set forth when you draw up the terms of the trust. The advantage you gain is that the value of the house is then removed from your estate for tax purposes.