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Glossary of Terms

Annuitant: One who receives annual fixed payments from an annuity.

Annuity: A contract, legal obligation, to pay specified amounts over a specified period of time to a specified individual(s).

Appreciated Securities: Stocks and/or bonds that have increased in value since they were acquired.

Beneficiary: One named in a Will, Trust or other legal document to receive an interest in an estate.

Bequest: A testamentary gift (or gift received after death) generally received through a donor's will or other estate-planning document such as a living trust.

Capital Gains Tax: The tax imposed upon profits realized from the sale of financial assets that have increased in value since they were acquired.

Closely Held Stock: Stock where most of the voting stock of a corporation is held by a small number of shareholders, but which is still publicly traded. These shares are generally not available to the public, and given the fact that there are few shareholders, the shares are usually very thinly traded.

Codicil: An addition to a will that either modifies it or revokes part of it.

Charitable Gift Annuity: Offered through a charity is used by many to provide income for themselves and sometimes others in a variety of investment plans. The annuitant (the person investing funds through the charity) receives a contract or agreement from the charity which states that the charity will pay the annuitant a fixed income for life or a fixed period of time, with payments to start immediately or at some set future time. If the annuitant dies before the fixed period of time, any balance is paid to the annuitant's designated beneficiary. Probate or court involvement is avoided on these funds. The income paid under the annuity is secured by the assets of the charity.

Charitable Lead Trust: Allows donor to give a fixed annual income to charity for either a fixed term of years or the life of one or more individuals. At the end of the measuring term, the trust is dissolved and the remaining assets (or remainder interest) are distributed back to donor or to individuals specified in the trust.

Charitable Remainder Trust: A flexible way to give and receive an income. Assets are placed in an irrevocable trust that is managed by a trustee and can grow tax-free. Trust pays an income for life or for a set term of years to the named beneficiaries. When the last income beneficiary dies, or the trust term ends, the trust dissolves and the remaining assets (charitable remainder) are given to the charity for the purposes designated by the donor.

Charitable Remainder Annuity Trust: A trust which is set up to pay a fixed dollar amount (ie. $5,000) annually from the trust. The dollar amount must be at least 5% (or more) of the designated charitable beneficiary and the assets are eventually transferred to the trustor's or grantor's designated non-charitable beneficiary.

Charitable Remainder Unitrust: A trust which is set up to pay a return or fixed annual percentage of 5% (or more) of the net fair market value of the assets placed in the trust. The trust assets are revalued annually.

Endowment: A gift that is intended to be kept permanently and invested to generate income for charity.

Encumbrance: Any claim against a property that may diminish its value.

Executor: Person or institution named in a person's will who carries out the terms of the will.

Life Insurance Trust: A trust consisting of life insurance policies or proceeds. Funded Insurance Trust - A trust to which other property is transferred to be used, with the income, for the payment of premiums. Unfunded Insurance Trust - a trust which contains no fund for payment of premiums.

  • Name a charity as beneficiary on a life insurance policy. The simplest way to use life insurance to give a charity is to name a charity as beneficiary on a life insurance policy. Designating the charity as beneficiary allows donor to make a larger gift than they could otherwise afford. If the policy is a form of cash value life insurance, donor still has access to the cash value of the policy during their lifetime. However, because donor retains control of policy during their life, this type of charitable gift does not provide many of the other tax benefits of charitable giving. Upon donor's death, proceeds are included in their gross estate, but the full amount of the proceeds payable to charity can be deducted from the gross estate.
  • Donate an existing life insurance policy to charity. Donor assigns all rights in the policy to charity. Donor delivers the policy itself to charity and gives up forever control of the life insurance policy. Because transfer of ownership is irrevocable, this provides the full tax advantages of charitable giving. An income tax deduction equal to the basis of the fair market value of the policy may be taken. The policy is not included in donor's gross estate unless donor dies within three years of transfer. In this case, donor's estate will get offsetting charitable deduction.
  • Donate a new life insurance policy to charity. Donor purchases a new policy and immediately assigns all rights in the policy to charity. Donor pays all the premiums and delivers policy to charity. A charitable deduction for premiums may be taken if structured properly. The IRS treats this transfer as if the charity itself has purchased the policy on donor's life. Donor is entitled to full tax advantages of charitable giving.

Irrevocable Trust: A trust that cannot be changed or dissolved.

Liens: A legal claim on the property that acts as a security for the payment of a debt. If the debt is not repaid as promised, the lender of the lien holder can foreclose its claim on the property and force a public sale to pay the debt.

Life Estate: Gift of property in which the donor retains the right to use the property for life.

Living Trust: A written agreement to govern the distribution of assets at death. Trust is established by donor for their lifetime and is usually revocable.

Pooled Income Fund: (also referred to as a Charitable Remainder Pooled Income Fund) A pooled income fund is a trust, operated by a charitable organization, that combines the contributions of many donors for investment purposes. When donors make gifts to the pooled income fund, units are assigned to them or their named beneficiaries. The net income from the fund is paid to each beneficiary on the basis of the number of units assigned. This makes it ideal for smaller contributions.

Professional advisors: Are estate-planning attorneys, financial planners, trust officers, certified public accountants, stockbrokers and insurance agents who can be invaluable guides in helping you plan and execute your charitable giving.

Probate: The process of proving a Will's validity; used loosely to mean the administration of an estate.

Real Property: Includes land, buildings, and items attached in a relatively permanent manner, such as escalators and light fixtures.

Remainder: The amount remaining in a trust after income payments have ended. A remainder is vested when payable to a designated beneficiary, or to a class of beneficiaries where or not living at the termination of the trust. It is contingent when dependent on some occurrence or event to take place in the future.

Retained life estate: This gift occurs when a donor transfers title of a personal residence or farm to charity and retains the life estate interest while charity retains the remainder interest. Life estate interest is the donor's right to use the property for a term of years or their lifetime and/or another person. Remainder interest is charity's right of ownership to the property after life estate has expired.

Retirement Assets: Are assets such as a retirement plan, 401(k), 403 (b), IRA, Keogh, or other qualified pension plans.

Revocable Trust: A trust that can be changed or dissolved at any time by the grantor.

Trust: An arrangement whereby property is held by an individual or institution for the benefit of others.

Trustee: Party legally responsible for carrying out the terms and performance of a trust.

Trustor: The individual who establishes the trust. Also referred to as the Grantor and/or Settleor.

Will: The most basic instrument used to distribute an asset, also called Last Will and Testament. A will is a legal document that spells out the disposition of a person's assets after death. It is governed by state law and is the most basic element of an estate plan.

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