ANNUITY: A contractual arrangement to pay a fixed sum of money to an individual at regular intervals. The charitable gift annuity is a gift that secures fixed lifetime payments to the benefactor and/or another individual.
ADJUSTED GROSS INCOME (AGI): Your total gross income adjusted downward by specific deductions allowed by the tax code, before taking your standard or itemized deductions. AGI is the number you write at the bottom of page 1 of your 1040. Individuals may deduct charitable cash contributions up to 50% of AGI in any given tax year. For gifts of appreciated property the deductible limit is 30% of AGI in any given tax year.
APPRAISAL: A professional assessment of the value of a piece of property. Generally, benefactors contributing real or tangible personal property (books, collectibles, etc.) worth $5,000 or more must secure an independent appraisal of the property to substantiate the value they claim as a charitable deduction.
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). Generally, appreciated property held by the donor for a year or more may be donated at full fair market value with no capital gains cost.
BASIS: The tax purpose value of the property or asset used in establishing the potential capital gains amount.
BENEFICIARY: The recipient of a bequest from a will or a distribution from a trust, retirement plan, or life insurance policy.
BEQUEST: A gift of property or assets to a beneficiary as defined in a will.
CAPITAL GAINS TAX: A federal tax on the appreciation in an asset between its purchase and sale prices.
CHARITABLE GIFT ANNUITY: Offered through a charity, 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.
CHARITABLE LEAD TRUST: 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).
CHARITABLE REMAINDER ANNUITY TRUST: 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.
CHARITABLE REMAINDER UNITRUST: 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.
CODICIL: A codicil is a document that amends, rather than replaces, a previously executed will. Amendments made by a codicil may add or revoke a few small provisions (e.g., changing executors), or may completely change the majority or all of the gifts under the will. Each codicil must conform to the same legal requirements as the original will, such as the signatures of the testator and, typically, two or three (depending on jurisdiction) disinterested witnesses.
ENDOWMENT FUND: An invested fund owned by a charity from which the capital appreciation and/or income is used to support the general or specific objectives of that charity’s mission.
ESTATE TAX: A federal tax on the value of the property held by an individual at his or her death (paid by individual’s estate, not the heirs or recipients of bequests). In contrast, state inheritance tax is applied to the value of bequests passing to beneficiaries; it is also paid by the estate before the distributions are made.
EXECUTOR: The person or institution named in a person’s will who carries out the terms of the will.
GUARDIAN: 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.
INTESTATE: Dying without a legal current will or living trust.
JOINT TENANCY: 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.
LIFE INCOME GIFT: A planned gift that makes payments to the benefactor and/or other beneficiaries for life or a term of years, then distributes the remainder to charity.
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.
LIVING TRUST: 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).
OUTRIGHT GIFT: A contribution of cash or property in which donor retains no interest and can be used right away by charity.
PERSONAL PROPERTY: Securities, artwork, business interests and items of tangible property as opposed to “real property,” used in planned giving to refer to land and the structures built on it.
PROBATE: 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.
PROFESSIONAL ADVISORS: 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.
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 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.
RETIREMENT ASSETS: Assets such as a retirement plan, 401(k), 403(b), IRA, Keogh, or other qualified pension plans.
TENANTS IN COMMON: 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.
TRUST: 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).
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.
TRUSTOR: The individual who establishes the trust. Also referred to as the GRANTOR.
WILL: 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.