Weatherby & Associates, PC

S corporation
A closely held corporation whose stockholders have elected to have corporate net earnings taxed directly to themselves, rather than taxed once at the corporate level and again when paid out as dividends.

Section 306 stock
Certain preferred stock that, because of the circumstances of its issuance and acquisition, will generate ordinary income, rather than capital gains, on its disposition.

Section 2503(b) trust
A minors' trust that qualifies for the gift tax annual exclusion because it gives the income beneficiary a right to all of the trust's income for life or for a term of years. Only the income interest qualifies for the annual exclusion as a present interest.

Section 2503(c) trust
A minors' trust that qualifies for the gift tax annual exclusion because it meets the requirements of Internal Revenue Code Section 2503(c), including terminating in favor of the beneficiary at or before age 21 or in favor of the estate (or under a general power of appointment) if the beneficiary dies before attaining this age.

Self-destructing trust clause
A provision in a life insurance trust under which, if any of the proceeds are included in the insured's gross estate (as when the insured dies within three years of having given the policy to the trustee), the proceeds are paid back to the insured's estate or to the insured's surviving spouse.

Self-settled trust
A Trust, which is established with the funds of the beneficiary—typically, a tort victim or a person receiving an inheritance.

Settlement options
The various options, given by a life insurance company to the beneficiary of the policy proceeds, as to the form in which the proceeds will be paid.

Short-term capital gains
See "Capital gains, short-term."

Simple trust
A trust that is required to distribute all of its income currently, that does not pay principal, and that makes no charitable distributions.

Skip person
An individual assigned to a generation at least two generations below that of a grantor, or a trust solely for such individuals. A gift to a skip person is subject to the generation-skipping transfer tax as a "direct skip" gift.''

Soak-up tax
Also known as a "sponge" tax; this is a state death tax measured by the allowable federal estate tax credit for state death taxes. Massachusetts ands several other states have "decoupled" their estate tax from the federal estate tax since the phase out of the state death tax credit, setting the state estate tax at the same rate the sponge tax would have been prior to the repeal of the federal estate tax in 2001.

Special allocation
A provision in a partnership agreement by which tax or other benefits are allocated among the partners otherwise than in accordance with their percentages of partnership interest generally.

Split-gift
A gift as to which the donor's spouse elected on a timely gift tax return to be treated as the donor of one‑half of the gift, thus enabling the use of the donor's spouse's unified credit and annual gift tax exclusion.

Split-purchase
An arrangement under which two persons buy property together, one buying a life interest and the other buying the remainder interest.

Sprinkling trust
A trust in which the trustee may pay income (and sometimes principal) to any of a number of beneficiaries, usually in any proportions the trustee deems appropriate.

Standby trust
A revocable trust that is used to manage the assets of the grantor after his or her disability.

Sweetheart contract
A contract made on especially favorable terms.