Glossary of Terms
APPRECIATED ASSETS are
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
a taxable capital gain (either long-term or short-term
depending on the holding period).
The ATTORNEY is the person
licensed by the state to practice law and assist the
executor, trustee, and guardian. It is conceivable
that each could hire a separate attorney, but usually
one attorney represents all three.
The BASIS is the tax purpose
value of the property or asset used in establishing
the potential capital gain amount.
A BENEFICIARY is the person
and/or organization that receives the benefits (usually
assets or income) of the trust.
A BEQUEST is a gift of property
or assets to a beneficiary as defined in a will.
A BYPASS TRUST is set
up to avoid or bypass the surviving spouse's estate,
which enables each spouse to use the federal estate
tax exemption.
The CHARITABLE
GIFT ANNUITY offered through a charity is used
by many to provide income for the annuitant and a
second beneficiary, if any. The annuitant (the person
providing funds to the charity) receives a contract
or agreement from the charity which 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. See
Gift Annuity Benefits
for more details.
A CHARITABLE LEAD TRUST is
almost the opposite of a charitable remainder trust.
During the term or life of the charitable lead trust,
an annuity or unitrust income interest is distributed
each year to the designated charitable beneficiary
and the assets are eventually transferred to the trustor's
or grantor's designated non-charitable beneficiary(ies).
A CHARITABLE REMAINDER ANNUITY
TRUST is a trust which is set up to pay a return
or fixed annual percentage of 5 percent (or more)
of the net fair market value of the assets placed
in the trust. The trust assets are valued initially,
at the time the property is placed in the trust. The
trust assets are never revalued.
A CHARITABLE REMAINDER UNITRUST
is a trust which is set up to pay a return or fixed
annual percentage of 5 percent (or more) of the net
fair market value of the assets placed in the trust.
The trust assets are revalued annually.
A CODICIL is a written change
or amendment made to a will.
The EXECUTOR is the person
or institution named in a person's will who carries
out the terms of the will.
The GUARDIAN is the person
who is appointed by the Court to care for the person
and/or estate of a minor child or incompetent person.
One can nominate a guardian in a will, and though
normally the court will honor that nomination, the
Court has the right to agree or disagree.
JOINT TENANCY is a type of
ownership where any two or more persons, related or
not, may hold (own) property and the property passes
to the survivor or survivors on the death of one.
This passing is not automatic, as some think, and
the procedure for passing will depend on local law.
But, this form of ownership does have the advantage
of allowing property to pass to the survivor without
delays of probate and court administration costs.
A LIFE INSURANCE TRUST is usually
set up for the purpose of excluding the proceeds of
life insurance from the insured's and the spouse of
the insured's estate for death tax purposes. It is
an irrevocable trust.
A LIVING TRUST
is a trust set up to operate during the life (and
can operate after the death) of the one setting up
the trust. It can be revocable, or, in other words,
you can change your mind and have some or all of the
trust property returned to you during your life. An
irrevocable trust cannot be changed except in certain
legal circumstances (fraud, unlawful agreements, merger
of interests, decision of the Court). See Living
Trust - Advantages/Disadvantages.
POOLED INCOME FUND - also called
a Charitable Remainder Pooled Income Fund- is an investment
fund much like a mutual fund. It is made up of transfers
by many persons to the fund who receive life income
interest in exchange for their transfers, based on
the value of the transfer into the fund and based
on the income earned by the fund.
PROBATE
is the legal process of proving a will, appointing
an executor, and settling an estate; but by custom,
it has come to be understood as the legal process
whereby a dead person's estate is administered and
distributed.
A QUALIFIED TERMINABLE INTEREST
PROPERTY TRUST (QTIP) is a trust often set up
to avoid transfer tax on the first spouse's death.
The deceased spouse establishes the ultimate disposition
of the property, rather than the surviving spouse
including the property in their estate. During their
lifetime, the surviving spouse receives all income
from the principal and, in some cases, has access
to the principal.
A RETAINED LIFE ESTATE is 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 routine expenses - maintenance fees,
property taxes, repairs, etc. - are the responsibility
of the donor. The donor receives an income tax deduction
for a significant portion of the value of the contributed
property (the property is irrevocably deeded to the
charity) and estate tax benefits.
TENANTS IN COMMON is a property
ownership arrangement in which two or more persons
own property jointly. It is not necessary that the
ownership consist of equal shares or percentages of
the property. Generally there is no right of survivorship
when a co-owner dies. The share of the property belonging
to the deceased co-owner passes to his or her heirs
and the shares of the remaining original co-owners
do not change.
TESTAMENTARY TRUST - A will
can have a trust written into it, called a Testamentary
Trust, which is set into motion by the Court after
the will reaches a certain point of execution, and
is used only after the death of the person whose estate
it represents.
A TRUST is defined as any arrangement
where property is to be held and administered by a
trustee for the benefit of those for whom the trust
was created. Depending on the type and how it is established,
a trust may be revocable (changeable) or irrevocable
(not changeable).
The TRUSTEE is 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.
A TRUSTOR is the individual
who establishes the trust. Also referred to as the
GRANTOR and/or SETTLOR.
UNIFIED CREDIT - A federal
tax credit that offsets gift tax and estate tax liability.
For gift tax purposes, the unified credit remains
at $345,800 through 2009, which is equivalent to an
applicable exclusion amount of $1 million. For estate
tax purposes, the unified credit is being gradually
increased from $345,800 in 2003 to $1,455,800 in 2009,
which is equivalent to an applicable exclusion amount
of $1 million in 2003 to $3.5 million in 2009.
A
WILL is the legal expression or declaration
of a person's mind or wishes as to the disposition
of the person's property, to be performed or take
effect after the person's death.
Please note, individual
financial circumstances will vary. The information
on this site does not constitute legal or tax advice.
Donor stories and photographs are for purposes of
illustration only. As with all tax and estate planning,
please consult your attorney or estate specialist.
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Revised: June 9, 2008 19:00.
