Gift Planning Glossary of Terms

Transcription

1 Gift Planning Glossary of Terms Annual Exclusion The amount of property (presently $14,000 or $28,000 for a married couple in 2013) that may annually be given to a donee, regardless of the donee s relationship to the donor, free of gift tax. Annuitant An individual who receives or is qualified to receive an annuity. Annuity The financial arrangement or contract an annuitant makes with a third party (family members, insurance company or charity) in which he or she will receive a specific amount at stated intervals, for life or for a specified term, in consideration of either cash or other assets. (See also Charitable Gift Annuity) Appreciated Assets Assets that have a higher market value than their basis or tax purpose value. Such assets would, if sold by an individual or non-charitable organization at a price higher than their basis, potentially generate taxable capital gains (either long-term or short-term depending on the holding period). Basis The original acquisition price is the cost basis. Adjusted basis is generally cost basis less any allowance against basis, such as depreciation, plus any additional investment in the asset. Adjusted basis normally is the value used for tax purposes to determine gain or loss. Beneficiary (1) The person for whose benefit a trust is created; (2) The person to whom the amount of an insurance policy or annuity is payable. (3) The person who receives under a will. Bequest A gift of personal property by will; a legacy. Capital Gains (and Losses) The difference between purchase price and selling price in the sale of assets. The computation is used primarily in tax computations. Carryover Basis A method for determining the tax basis of an asset when it is transferred from one individual to another. It often is used when property is given as a gift to someone else and is the method for determining the basis for future tax payments. Charitable Bequest A gift of personal property to a legal charity by will. Charitable Gift Annuity Offered through a charity and provides income for the annuitant and a second beneficiary, if any. The annuitant (the person investing funds through the charity) receives a contract or agreement from the charity that states that the charity will pay the annuitant a fixed income for life (lives) with payments to start immediately or at some set future time. Probate or court involvement is avoided on these funds. The income paid under the annuity is secured by the assets of the charity.

2 Charitable Lead (Or UP-Front) Trust A trust for a fixed term of years wherein a charity is the beneficiary of an annuity or unitrust payment and the remainder goes to a non-charitable beneficiary. Charitable Lead Annuity Trust A charitable lead trust in which an annuity is paid to one or more charities for a set term or the life or lives of one or more individuals with the remainder passing to one or more private individuals. Charitable Lead Unitrust A charitable lead trust in which a fixed percentage of the trusts assets, valued annually, are paid to one or more charities for a set term of years or the life or lives of one or more individuals with the remainder passing to one or more individuals. Charitable Remainder Trust An arrangement wherein the remainder interest goes to a legal charity upon the termination or failure of a prior interest. Charitable Remainder Annuity Trust A trust that provides a sum certain, not less than five percent of initial fair market value of all property placed in trust, to be distributed at least annually to a non-charitable beneficiary, with remainder to a qualified charity. Charitable Remainder Unitrust A trust that provides a fixed percentage, not less than five percent of net fair market value of property, valued annually, to be distributed at least annually to a non-charitable beneficiary, with remainder to a qualified charity. Codicil A written change or amendment made to a will. Corpus The fund or capital upon which income is earned; also called principal. Cost Basis The original price or cost of an asset usually based on the purchase price or, in the case of assets received from an estate, or the appraised value of the assets at the death of the donor or some anniversary or other fixed date. Deferred Gift Any arrangement whereby money or property is set aside for the future use of a charity. Donor Advised Fund A charitable giving vehicle administered by a public charity and created for the purpose of managing charitable donations on behalf of an organization, family or individual. Estate Tax A tax imposed on the transfer of the taxable estate of a deceased person. The federal estate-tax exclusion now is set permanently at $5 million and is indexed for inflation each year. The amount of the federal estate-tax exclusion for 2013 is $5,250,000. Executor The person or entity (sometimes a bank) nominated in the will of another to carry out the terms of the will. Fair-Market Value The price at which a fully informed seller who is not being forced to sell would be willing to sell an asset to a fully informed buyer who is not being forced to buy.

3 Fiduciary An individual or a trust institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them. The relationship between a guardian and his ward, an agent and his principal, an attorney and his client, one partner and another partner, a trustee and a beneficiary, each is an example of fiduciary relationship. Gift Tax A tax levied on gifts between individuals on amounts above the yearly annual exclusion. Inter Vivos Trust A trust created during the settlor s lifetime; the same as a living trust; to be distinguished from trust under will or testamentary trust. Interstate (Adjective) (1) Without having made and left a valid will. (2) Not devised or bequeathed; not disposed of by will. (3) (noun) A person who dies intestate. Irrevocable Trust A trust which by its terms (1) cannot be revoked by the settlor or (2) can be terminated by him only with the consent of someone who has an adverse interest in the trust-that is, someone to whose interest it would be for the trust not to be terminated, such as a beneficiary; to be distinguished from a revocable trust with consent or approval. Joint And Survivorship A phrase usually applied to annuities under which, during the lifetime of both husband and wife, they are joint beneficiaries of the annuity and, after the death of either, the survivor becomes the sole beneficiary. Joint Tenancy The holding of property by two or more persons in such a manner that, upon the death of one joint owner, the survivor or survivors take the entire property; to be distinguished from tenancy in common and tenancy by the entirety. Last Will and Testament A legally enforceable declaration of a person s wishes regarding matters to be attended to after his death and not operative until his death; usually but not always relating to property; revocable (or amendable by means of a codicil) up to the time of his death or loss of mental capacity to make a valid will. Originally, a will related to real property; testament, to personal property, but at the present time, will is equally applicable to real and personal property. Life Estate Either an estate for the life of the life tenant alone or an estate for the life or lives of some other person or persons. If the estate is the life of a person other than the life tenant, it is known as an estate pur autre vie. Life Interest The estate or interest that a person has in property that will endure only during his own or someone else s lifetime. Life Tenant One who owns an estate in real property for his own life or for another person s life or for an indefinite period limited by a lifetime. Living Trust A trust that becomes operative during the lifetime of the settlor; as opposed to a trust under will. The same as a trust inter vivos.

4 Living Will A document which allows a person to state in advance his or her wishes regarding the use or removal of life-sustaining or death-delaying procedures in the event of a terminal illness or injury. Marital Deduction The portion of a decedent s estate that may be given to the surviving wife or husband without it becoming subject to the federal estate tax levied against the decedent s estate. Currently, the deduction is unlimited in amount. Also applies to lifetime gifts to a spouse that are not subject to federal gift tax. Private Foundations In general, all charitable foundations except those deriving substantial support from the public. They fall into two categories: private operating foundations, those where substantially all of the assets and income are used to carry on its exempt function, e.g., a museum; or private non-operating foundations, which include most family foundations. Remainder Beneficiary The beneficiary of a trust who is entitled to the principal outright after the interest of the prior beneficiary has been terminated. Residuary Estate The property that remains after all other gifts in the will have been satisfied. Those who take the residuary estate are known as residuary legatees (as to personal property) and residuary devises (as to real property). Retained Life Estate A gift plan defined by federal tax law allowing the donation of a personal residence (to include a vacation home) or farm with the donor retaining the right to life enjoyment. A life estate may be retained for one or more lives or it may be retained for a term of years. All routing expenses maintenance fees, property taxes, repair s, etc. are the responsibility of the donor. The donor receives income tax benefits in the year of the gift (the property is irrevocably deeded to the charity) and receives estate tax benefits Revocable Trust A trust that may be terminated by the settlor or by another person; opposed to an irrevocable trust. Stock Power A form of assignment executed by the owner of stock that contains an irrevocable appointment of an attorney in fact to make the actual transfer on the books of the corporation. Tangible Personal Property Property other than cash, securities, or real estate (e.g., a painting, stamp collection, or automobile). Testamentary Trust A trust established by the terms of a will. Trust A fiduciary relationship in which one person (the trustee) is the holder of the legal title to property (the trust property) subject to an equitable obligation (an obligation enforceable in a court of equity) to keep or use the property for the benefit of another person (the beneficiary). Trustee The person or institution named by a person making the trust, or appointed by the court, to carry out the terms of the trust. Assuming a trust has been set up through a will, when the executor s job is finished, the trustee s job begins. Unified Credit

5 A credit of a specified dollar amount allocated to each taxpayer that may be used to offset gift and estate taxes that would otherwise be owed. Will A legally enforceable declaration of a person s wishes in writing regarding matters to be attended to after his death and inoperative until his death. A will usually, but not always, relates to the testator s property, is revocable (or amendable by means of a codicil) up to the time of his death, and is applicable to the situation that exists at the time of his death. Contact our Gift Planning team to learn more ext giftplanning@ccf.org