 |
Glossary of Terms in Planned Giving
Administrator: Person named by the court to administer the assets and liabilities of an estate. An Administrator is typically appointed when a person passes away without a will, the will does not name an executor, or the person named in the will as the executor is unwilling to serve as executor.
Beneficiary: The persons or entities that will receive the benefits of your assets. In general, any person or entity may be a beneficiary, including individuals, nonprofit organizations, associations or governmental entities.
Capital Gains Tax: A tax on capital gains (the amount by which the proceeds from the sale of a capital asset exceed the original cost of the asset).
Charitable Lead Trust: A charitable lead trust (“CLT”) is the reverse of a charitable remainder trust (see below). It allows the donor to place highly appreciated assets (such as stock or real estate) into an irrevocable trust. The donor then assigns the income from the trust to a charitable organization. Upon the donor’s death, the ownership of the trust assets are returned to the estate or passed on to a beneficiary named in a will.
Charitable Remainder Trust: A charitable remainder trust (“CRT”) is an irrevocable trust that permits a donor to make a deferred charitable gift and receive an income tax deduction in the year in which the trust is established. The donor designates one or more individuals (often the donor and spouse) to receive an income interest in the trust for life, or for a term of years, with the remainder interest (the assets in the trust when income interest ends) passing to a charity. A CRT can be established during the donor's life or at the donor's death by provision in a will. Two types of CRT's are allowed under existing tax laws:
- a charitable remainder annuity trust and
- a charitable remainder unitrust.
A charitable remainder annuity trust specifies that a fixed dollar amount will be paid to a designated individual(s) for life or for a term of years. The amount to be paid each year will not change, even if the value of the trust assets increases or decreases.
A charitable remainder unitrust specifies that a designated individual(s) will receive annual payments determined by multiplying a percent times the fair market value of the trust assets each year for life or for a term of years. As the value of the trust increases or decreases, the amount paid each year will also increase or decrease.
Codicil: A written change or amendment to a will. A codicil may explain, modify, add to, subtract from, qualify, alter, restrain or revoke provisions in an existing will.
Conservator: An individual appointed by the court to administer the financial affairs of an incapacitated adult or a minor.
Durable Power of Attorney: A written instrument that gives someone else authority to act on your behalf until your death. A durable power of attorney gives your agent the power to act if you are physically or mentally disabled. A regular Power of Attorney ends if you become disabled.
Estate: Any money, real estate, personal property, retirement plans, life insurance, and other possessions which you own at the time of your death. Every person has an estate, not just those who are wealthy.
Estate Tax: A tax imposed on the right to transfer property by inheritance. The estate tax is assessed on the net value of the estate before it is distributed to the beneficiaries. (Also called a “Death Tax.”)
Executor or Executrix: A person appointed in a will to carry out the directions and requests contained in the will until the estate is settled. This person can also be called a “Personal Representative.”
Fiduciary Agent: One who has the legal duty to act primarily for another’s benefit. The term implies confidence and trust. This term is usually associated with a Trustee and can refer either to a person or a representative of a financial or legal institution.
501(c)(3) Organization: A tax-exempt organization deemed by the Internal Revenue Service to be charitable in nature. The North Carolina Community Foundation is a 501(c)(3) organization, as are thousands of other charitable organizations in our state.
Form 706: The IRS Estate Tax Return.
Form 709: The IRS Gift Tax Return.
Form 1041: The IRS Estate and Trust Income Tax Return.
Gift Tax: A tax on transfers of property by gift during the donor’s lifetime.
Guardian: A person who is legally responsible for the care and well-being of another person and for that person’s property. A guardian is often appointed to care for a minor child. If a guardian is appointed and supervised by a court, the guardian is called a “Conservator.”
Incompetent or Incapacitated: One who is unable to manage his or her own affairs, either temporarily or permanently.
Irrevocable Trust: A trust which may not be revoked or modified after it is established.
Intestate: One who dies without a valid will.
Living Trust: A living trust is a trust created to hold and manage a person’s assets while that person is alive. The person who establishes the trust typically has the right to amend the terms of the trust or to discontinue the trust at any time. The trust instrument contains instructions for the management of the trust and distributions from the trust. Assets that are in a living trust are not subject to estate taxes. Living Trusts are commonly used for the benefit or support of another person. Living Trusts are called sometimes “will substitutes.”
Living Will (or “Health Directive”): A written document directing the administration or the withholding of life-sustaining medical treatment in the event of a terminal illness or injury. To be effective, a person’s family, doctor, medical power of attorney, and local hospital need to have this paper on file.
Medical or Health Care Power of Attorney: A person named to make decisions about health care in the event that a person is no longer able to do so.
Net Value: The value of an estate after all debts have been paid.
Personal Property (vs. real property): Movable property (as opposed to real property, such as land or buildings); includes furniture, automobiles, equipment, cash, and stocks.
Planned Giving: A plan that helps a donor make a larger gift to a charitable organization or cause at the end of life than would be currently be possible. Some planned giving vehicles allow donors to receive a higher income during their lives, avoid estate taxes, and have the added benefit of assisting their favorite charity upon their death.
Probate: The legal process of filing a will with the probate court after a person’s death. The court determines whether the will is valid, hears all claims against the will, supervises the Executor or Administrator of the will, and orders creditors paid and assets properly distributed according to the terms of the will. This process is a matter of public record.
Probate Fees: Costs associated with the probate process, usually based as percentage of the gross value of the estate.
Retirement Plan Gift: A gift to a charitable organization of a retirement plan (e.g. an I.R.A, a 401-K, or a 403-B account). A charity is named as the beneficiary of the plan.
Revocable Trust: The opposite of an irrevocable trust. A trust in which the person establishing the trust retains the power to change, amend, or revoke the trust during his or her lifetime.
Special Bequests: Also known as special gifts. A separate list of personal property which is designated to selected persons; can be changed or revoked at any time before death.
Testamentary Trust: A trust established through a will. This trust is only effective upon death.
Trust: An agreement under which money or other assets are held and managed by one person for the benefit of another. Different types of trusts may be used to accomplish specific goals. Each kind of trust varies in the degree of flexibility and control it offers.
Trustee: The person or institution that accepts and manages property according to the instructions in a trust agreement. Typically, a successor trustee is also named, in case the first trustee dies, resigns, or is unable to act.
Will: A legal declaration of how a person’s possessions are to be disposed of after his or her death. A will states who receives what property and in what amount. Property distributed under a will becomes part of the “probate” estate. A will is not effective until death and can be revoked up until the time of death or until there is a loss of mental capacity to make a valid will.
|
