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Reasonable Compensation Back to Top

If salary, wages, perquisites or other remuneration is paid from a business or trust, the aggregate compensation will generally have to be "reasonable" in comparison to the services provided and other relevant factors to be respected by the IRS.

In the context of business valuations and divorce the "reasonable compensation" of a spouse, owner or other key person is often estimated and any compensation above that amount adjusted in determining earnings (normalized earnings) for purposes of evaluating the business' worth, etc.

Receipt, Release and Refunding Bond Back to Top

See "Refunding Bond". When an estate is probated and the executor or personal administrator who is managing the estate is going to make a distribution generally the beneficiaries are requested to sign a legal document releasing the executor from any claims and acknowledging the receipt of the money or property distributed. Many of the releases signed when estate distributions are made are called "Receipt, Release and Refunding Bond". It is a legal document in which you as the heir would acknowledge receipt of a distribution, release (no claims) against the personal administrator and then agree to refund or return the money if necessary. This is commonly done in case distributions are made but a liability, lawsuit, tax audit or other matter requires a return of some of the distributions.

Recital Clauses Back to Top

Introductory clauses or provisions in a contract or agreement that describe the purpose and objectives for the contract or "deal". See definition of "Whereas" clauses.

Recourse Liabilities Back to Top

These are debts that individuals, such as yourself (as a Member of the LLC which has taken the loan), are liable. Contrast with Nonrecourse Liabilities.

Redistribute Estate Back to Top

When you die your estate needs to be distributed. If you have a will, that will directs to whom and how your estate is distributed. If you don't have a will then state law will determine to whom and how your estate will be distributed (intestacy). If you have established any types of trusts, these trusts will govern (control) the distribution of assets they control. You can often "re-distribute" or redirect the distribution of estate assets by using "disclaimers". This is when you (or another heir) file documents in court and take certain actions (or in-actions) to not accept an inheritance. When you disclaim (renounce) assets the distribution of the assets will be re-directed in accordance with the will (or state law, or the trust). Thus, you can use disclaimers to redistribute or redirect assets. Caution - if you instead accept an inheritance and try to redistribute it to persons you wish to receive it you will be in the chain of title or ownership of those assets which can have significant legal implications (e.g. hazardous waste on a real property; claims of your creditors; etc.) and there could be gift taxes as well.

Refunding Bond Back to Top

This legal document may be essential to protecting yourself if your an executor planning to make a distribution. In the context of administering an estate (probate) a refunding bond is a document which the executor (personal administrator) who manages the estate has a beneficiary sign, in many cases, before making a distribution. In this agreement the beneficiary agrees that if the funds or assets distributed are needed by the estate (and this "need" could be limited to paying taxes or taxes and expenses, or a lawsuit) the beneficiary will return or "refund" the distribution to the estate. Since the executor can be held personallony liable for unpaid estate taxes, for example, the executor should make sure that if distributions are made prior to the final determination of estate taxes by the IRS and any state tax authority, that a refunding bond is signed before a distribution is made. From the beneficiary's perspective, signing a refunding bond may enable or entice the executor to make distributions earlier in the estate administration process (e.g. a partial distribution of some of the cash and assets which are unlikely to be needed). However, a beneficiary signing a refunding bond should also understand that it is possible that the distribution may have to be returned so spending the distribution quickly after receipt is not always advisable. This legal document is also referred to as a "Release and Refunding Bond". In this latter document the beneficiary, in addition to agreeing to refund the distribution, is also asked to release the executor from any claims.

Registered Agent Back to Top

Most types of entities, LLCs included, specify in the documents they file when formed (Certificate of Formation or Articles of Organization for an LLC) a person upon whom notice should be given (served) in the event of a lawsuit or other matter. This designated person is often called a Registered Agent. Be careful that if the person named moves to a new address, or is no longer appropriate (e.g. he or she is no longer a Member, etc.), that you file a Certificate of Amendment to change the designation.

Related or subordinate party Back to Top

“Related or subordinate party" means any nonadverse party who is the grantor's spouse if living with the grantor; any one of the following: The grantor's father, mother, issue, brother or sister; an employee of the grantor; a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control; a subordinate employee of a corporation in which the grantor is an executive. A related or subordinate party shall be presumed to be subservient to the grantor in respect of the exercise or nonexercise of the powers conferred on him unless such party is shown not to be subservient by a preponderance of the evidence.

Release Back to Top

A release is a document in which you confirm to someone or an entity, or both, that you have no claims against them. For example, if litigation is settled, you may in exchange for your settlement, sign a document, called a release (sometimes a receipt and release) stating to your adversary that you have no further claims against them.

Remainder Back to Top

A "remainder" in land, is an estate (interest) in lad that is a remnant or left over after a prior estate or ownership interest in the land ends. The prior estate and remainder estate are created at the same time and under the same legal document (instrument) such as a deed. For example, I give my ownership interest in my house to John and on John's death, the ownership (remaining interest after John's rights) shall go to Jane. Jane has a remainder interest. Similarly, I could place a rental property in trust with all net rental income to my daughter Sally, and upon Sally's death (or some specified number of years) the property shall go to a named charity, such as the National Parkinson's Foundation.

In other words, a remainder is an estate or interest in property that will be enjoyed after the expiration of a prior estate.

There are a host of types of remainder interests:

Contingent Remainder (the remainder is dependent upon an event or other occurrence).
Charitable remainder (a charity gets the remainder interest).
etc.

Remainder Beneficiary Back to Top

The person who will receive assets of a trust after the interests of persons who are currently receiving income end. The remainder beneficiaries under a QPRT will receive the residence following the QPRT term.

Remainder Interest Back to Top

The interests or rights that follow the initial beneficiary's interests. In a QPRT, the Grantor (usually a parent) is the initial beneficiary for the term of the trust. Following the end of the QPRT term, specified family members (usually, but not necessarily children of the Grantor) receive the remainder interest. The remainder interest will be the residence, unless the Grantor exercised the right to replace the residence with property of equivalent value (usually cash).

Remainder Interest Sale Back to Top

A remainder interest is the interests, rights, assets, etc. left at the end of a preceding interest (sorry, bear with us!). An example can illustrate. Your father establishes a grantor retained annuity trust ("GRAT") to shift the value of significant family wealth to you at a substantial discount. During the term of the GRAT (called annuity term) your father would have to receive a periodic annuity. After that term and his annuity end, you receive what is left in the GRAT (i.e., the trust). This is referred to as a remainder interest. In some instances you may be able to sell your remainder interest. This could be done for tax, asset protection, divorce protection or other reasons. You would sell your future (remainder) rights before actually receiving them. You might, for example, be able to sell your remainder interest in this GRAT to another trust for an amount equal to the actuarial value of your interest.

Remand Back to Top

When a higher court sends a case back down to a lower court to take a specified action, or resolve a specific issue as determined by the higher court, the higher court is said to "remand" the case to the lower court.

Remand Back to Top

When a higher court to which a case has been appealed to sends the matter back to the lower court to address an issue it is said that the case is "remanded".

Res Back to Top

Principal or assets of a trust. In the case of a QPRT, the residence is the only asset (or only significant asset) unless the residence is sold and cash is held pending the qualified reinvestment in a new residence, or in the event that the QPRT is converted to a QAT.

Research Credit Back to Top

A tax credit is available for increases in qualified research expenses and basic research payments to universities and other qualified organizations.

Reverse Mortgage Back to Top

A reverse mortgage is a transaction in which a lender provides funds to a homeowner. Unlike a traditional mortgage the "lender" may have the right to purchase the house at a specified time period or if certain conditions occur. A reverse mortgage provides a homeowner, especially an elder home owner, an opportunity to extract spendable cash from their otherwise non liquid housing asset. Many of these transactions are consummated by elderly taxpayers looking to obtain funds to supplement the "income" (cash flow) in later years. Because reverse mortgages are still relatively new, careful consideration should be given to understanding the nature and structure of the transaction and the implications of it. Also, in evaluating a reverse mortgage the range of other options available. This might include a sale of the house to heirs (e.g., children), sale of the house using the home sale exclusion and a scale down to a smaller residence, sale of the residence using some of the proceeds to purchase a charitable gift annuity, and so on.

Reversionary Interest Back to Top

Pertains to giving property away with the possibility that the property will return to you.

Revocable Living Trust Back to Top

Revocable living trusts are a legal contract that create a trust, typically you as the person forming the trust (granter, settlor or trust or) and yourself as a trustee (and often another person or institution as a co-trustee). A revocable trust is "revocable" in that you can change, modify or "revoke" it at anytime. The benefit most often touted for revocable trusts (sometimes called living trusts or living trusts) is that they can be used to avoid "probate". Probate is the formal process to have a will admitted or recognized by court and to have your estate administered (collecting assets, paying expenses, and then distributing assets to beneficiaries). However, the real power of a revocable living trust is not the avoidance of probate. While probate avoidance can be a valued use there are many ways to minimize and avoid probate costs, living trusts don't always accomplish that goal, and in many cases probate is simply not a big deal!. Living trusts can be used to manage assets during disability and illness. If you have a chronic illness, or are aging, setting up a revocable trust, really transferring assets to it (funding) and creating a co-trustee or trustworthy successor trustees that take over if you cannot serve, is a technique that can assure your care and protection of your financial resources. Revocable living trusts can be used in other creative ways as well. For example, if you inherited assets and wish to assure that they don't become commingled (mixed) with marital assets so that they will have a greater likelihood of being protected in the event you divorce, you could establish a revocable trust solely to hold inherited assets. Segregating assets in this manner can be beneficial in that they are in a separate account, perhaps with a co-trustee along with yourself. There are other creative uses of revocable trusts as well. The key is to avoid the sales pitches of canned documents that only avoid the purported evils of probate and use a living trust as part of a comprehensive estate plan prepared by a qualified estate planner.

Revocable Trust Back to Top

See also "revocable living trust". Most trusts that are revocable (can be changed, modified or rescinded), are created during the grantor (the person who establishes the trust, also called trustor or settlor) lifetime (in legal jargon, inter-vivos). These are also referred to as "living trusts" and "loving trusts". Too often these trusts are boilerplate sold to consumers on the basis that they help avoid the purported evils and costs of probate. For example, if you own a vacation home, second home, or other investment real estate in a state other than the state in which you live (domicile), having a living trust own that property will avoid ancillary probate in that other state. While probate avoidance is a reasonable goal, in many jurisdictions it is not a significant difficult, cost or time delay. For example, a limited liability company may be a better option to own that real estate investment then a living trust as it can provide protection of your home and other assets from a lawsuit against that property. A living trust does not (yet many websites and even attorneys routinely recommend living trusts as the only answer is such situations). However, a well done living trust can be tailored to address a range of important issues, consider the following:

o Living trusts can be used, and usually are, with a "pour over will". This is a will that distributes, or pours over into, the living trust, any probate assets that are governed by the will. However, this is too simplistic an approach as in many circumstances a pour over will can defeat some of the key benefits of a living trust. Creativity, not standardization, is often what is needed to make your plan best fit your needs (not the form you buy on a website).

o Living trusts can be used solely to hold gifted or inherited assets to provide greater assurance that they won't be commingled and thus tainted as marital assets subject to equitable distribution in a divorce.

o Living trusts can be used to hold a single asset, such as a family vacation home, to provide a structure for its use and assure the desired eventual disposition.

o Living trusts can be carefully tailored to address illness, disability or chronic illness. For example, someone living with a chronic illness that is typified by on again, off again, attacks, can use a living trust with a current active co trustee to facilitate asset management during those attacks.

o Someone suffering from a debilitating illness such as Parkinson's disease, ALS, or Huntington's Disease can use a living trust to organize and provide for the management of their asset current, tailor or modify the trust as they desire to "fine tune" it for the future time when they won't be able to manage assets.

Living trusts are powerful and useful estate, financial and personal planning tools when they are given the care and attention necessary.

Right of election Back to Top

This is also called the "spousal right of election". It is a right given to a surviving spouse under state law to claim a specified minimum percentage of the late spouse's estate. So if you die and leave your husband nothing under your will, he may have the right under state law to demand a certain portion of your assets. In very general terms many states use a paradigm of 1/3rd of the estate. However, the differences from state to state are substantial. Many states also use a concept called "augmented estate" which means that the state statutes add to your estate assets you may have given away or otherwise disposed of in determining the assets your surviving spouse can choose to claim an interest in (called "elect against"). In many prenuptial agreements this statutory right to elect against an estate is waived.

Risk Tolerance Back to Top

When you make investment decisions you need to consider how much risk you are willing to take on your investment decisions. The more risk generally the more return you would expect to realize. When you are serving as a trustee (or in any other fiduciary capacity) you need to consider the risk which the beneficiaries of the trust are willing to accept.

Rolling GRAT Back to Top

To understand a "rolling" GRAT you have to understand what a GRAT is. See that definition, but here's a quickie. A GRAT is the acronym for Grantor Retained Annuity Trust, a sophisticated estate planning technique used to shift value to the next generation (generally children only, not to further generations such as grandchildren). A GRAT can be used to leverage your gift tax exclusion (the amount you can give away while alive before incurring a gift tax). A common planning technique is to set up a short term, say 2 years, GRAT and fund it with a single class of securities, preferably volatile securities. If the GRAT performs well over the two year period the growth in the assets over the federal interest rate which must be used in the calculations can be removed from your estate. By segregating asset classes, or at least equities or volatile equities (or other assets) into the GRAT you increase the likelihood of gain. Short term GRATs are used so that if there are quick gains in the GRAT's assets the GRAT ends before those gains are dissipated. When this technique is used, the funds or assets distributed out of a particular GRAT will be reinvested in a new GRAT with the hopes of capturing outside your estate the upside volatility on these investments. When GRATs are used in this type of short term, sequential, refunding arrangement, they are sometimes referred to as short term or rolling GRATs.