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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
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 Benefits
of the Gift Annuity 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.
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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
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.
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.
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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.
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.