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Glossary of Terms

A

Actuarial
As used in planned giving, refers to the factors used to calculate the value of lifetime payments to individuals or organizations.

Adjusted Gross Income (AGI)
The sum of an individual’s taxable income for the year.  Individuals may deduct charitable cash contributions up to 50% of their AGI; and 30% for gifts of appreciated securities and property.

Annuitant
An annuitant is the individual who is the income beneficiary of a charitable gift annuity.

Appraisal
An assessment of the value of a piece of property.  Individuals contributing real or tangible personal property (art, books, collectibles, etc.) to Boys & Girls Aid must secure an independent appraisal of the property to substantiate the value of the property and ultimately the charitable deduction.

Appreciated Property
Securities, artwork, real estate, or any other property that has risen in value since the individual acquired the property.  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.

B

Bargain Sale
A bargain sale is a simple agreement where the donor sells tangible personal property or other assets to Boys & Girls Aid for less than the current value.  The donor earns an income tax deduction for the difference between the fair market value (FMV) of the donated assets and the sale price.  If the bargain sale includes long-term appreciated property, the donor must report the capital gain that is attributable to the sale portion of the transaction.

Beneficiary
Any person named in a Will, Trust or other legal document that will receive a portion of the estate.

Bequest
A direction in a Will to pay or distribute personal property.  A Bequest is also known as a Legacy.

C

Capital Gain
Capital gain is the difference between what an individual paid for an asset and the current fair market.  For example, if a person purchased stock for $10,000 and the stock is currently worth $15,000, the individual’s capital gain in the stock is $5,000.  Capital gain for property held for longer than one year is called long-term capital gain and is taxed at capital gain tax rates.  Capital gain for property held for one year or less is called short-term capital gain and is taxed at ordinary income tax rates.

Charitable Gift Annuity (CGA)
A simple contract between a donor(s) and Boys & Girls Aid.  In exchange, for an irrevocable gift of cash or appreciated securities, Boys & Girls Aid agrees to pay one or two annuitants a fixed sum each year for remainder of life.  In addition to the fixed income, the donor receives an income tax deduction for the difference between the amount transferred and the value of the annuity.  Most annuity payments are partially tax-free for a pre-determined period (based on the annuitant’s age).  If the donor gives an appreciated asset, the donor will pay capital gains tax on part of the appreciation but it will be spread out over the donor’s life expectancy.  (If the donor were to sell the appreciated asset instead, all of the capital gains tax would be due in the year of the sale).  Annuity payments are guaranteed by Boys & Girls Aid and may be made annually, semiannually, quarterly, or monthly, depending on gift size.

Charitable Lead Trust (CLT)
Permits an individual to transfer assets to family members at a reduced tax cost while making a generous gift to Boys & Girls Aid.  The CLT’s term must be for a specific amount of time.  The donor irrevocably transfers acceptable assets to a trustee for creation of the CLT.  The donor receives a gift tax deduction equal to the value of the income stream promised to Boys & Girls Aid.  Each year, the Trustee pays a fixed percentage of the unitrust’s current value, as revalued annually, to Boys & Girls Aid.  Payments are used for the charitable purpose as designated by the donor.  When the CLT terminates, the Trustee distributes all it accumulated assets to family members or other beneficiaries named in the Trust.

Charitable Remainder Annuity Trust (CRAT)
Permits an individual to irrevocably transfer assets to a trustee for the creation of a CRAT.  The Trust will provide income to the donor or named income beneficiary while making a generous gift to a charity.  The Trust must specify a term that the income will be paid to the beneficiaries.  The donor receives an income tax deduction equal to the trust’s remainder value to the charity.  Each year, the Trustee distributes a fixed dollar amount to the income beneficiaries.  The payments must be between 5% and 50% of the trust’s initial value.  Payments continue until the trust term ends.  Trust payments may be made annually, semiannually, quarterly or monthly.  When the CRAT is terminated, the Trustee distributes the remainder to the charity named in the Trust.

Charitable Remainder Unitrust (CRUT)
Permits an individual to irrevocably transfer assets to a trustee for the creation of a CRUT.  The Trust will provide income to the donor or named income beneficiary while making a generous gift to a charity.  The Trust must specify a term that the income will be paid to the beneficiaries.  The donor receives an income tax deduction equal to the trust’s remainder value to the charity.  Each year, the trustee distributes a fixed dollar amount of its current value, as revalued annually on December 31st, to the income beneficiaries.  The payments must be between 5% and 50% of the trust’s initial value.  Payments continue until the trust term ends.  Trust payments may be made annually, semiannually, quarterly or monthly.  When the CRUT is terminated, the Trustee distributes the remainder to the charity named in the Trust.

Cost Basis
The initial purchase price for an asset, possibly adjusted to reflect subsequent costs or depreciation.  If Mr. Black bought stock for $100 per share and sold it for $175, his cost basis for the stock is $100 per share.

D

Discount Rate
The annual rate of return that the IRS assumes the gift assets will earn during the gift term.  The IRS discount rate is used to determine the charitable deduction for planned gifts (charitable gift annuities and remainder trusts).  As the IRS discount rate rises so does the deduction for charitable gift annuities and remainder trusts.

E

Executor
The person named in a Will to administer the estate.  This person may also be referred to as the personal representative.

Estate Tax
The tax assessed on the assets in an individual’s estate after death.  The federal estate tax is assessed against a person’s taxable estate, as determined on the federal estate tax return (Form 706)

F

Fair Market Value (FMV)
The dollar value that a buyer is willing to pay the seller for an asset.  For example, the FMV of a publicly-traded security is the current trading price as established by the stock exchange.  The fair market value of cash is its face value.

Form 1099-R
The IRS form issued to income beneficiaries of Charitable Gift Annuities reporting distributions from Boys & Girls Aid.

G

Gift Annuity Rates
The national organization of American Council on Gift Annuities (ACGA) issues tables of suggested maximum annuity rates that member charities should offer to their donors.  Annuity rates will vary with age and the older the annuitant(s) the higher the suggested maximum annuity rate.  Boys & Girls Aid has been a member of ACGA since its inception in 1993.

Gift Tax
A tax on the donor of gifts made during his or her life, based on the right to transfer or transmit, and payable primarily by the donor.

Grantor
The creator of a Trust or other legal instrument.

Gross Estate
Everything in which the deceased person owned an interest at the time of death.  The Gross Estate includes such items as life insurance, or partial interests in joint property, transfers intended to take effect at or after death, or when the power to change the enjoyment of the property has been retained.

Income Interest
In a Trust, the right to receive payments from the Trust for lifetime or a term of years as established within the Trust.

Income Tax Deduction
The donor of a planned gift earns an income tax deduction for the fair market value of the gift to Boys & Girls Aid.  With regards to planned giving, the amount of the deduction equals the amount transferred to Boys & Girls Aid less the value of the income stream that the planned gift will pay to the income beneficiaries.

Insurance Trust
A Trust consisting of Life Insurance Policies or proceeds.  A Funded Insurance Trust is a trust where other property is transferred to be used, with the income, for the payment of policy premiums.  An Unfunded Insurance Trust is a Trust which contains no funds for payment of premiums.

L

Life Expectancy
The length of time an individual is expected to live, given his or her current age.  The life expectancy is based on the mortality table used by the IRS.

Life Income Agreement
An irrevocable gift of a principal sum, property, or appreciated securities with a stipulated life income paid to the donor or another person for his or her lifetime(s).  A Life Income Agreement may be a Charitable Gift Annuity or Charitable Remainder Trust.

Life Income Trust
A plan whereby gift assets are placed in Trust for the lifetime benefit of an income beneficiary, with the remainder going to Boys & Girls Aid.

O

Outright Gift
An irrevocable transfer from a donor to Boys & Girls Aid of personal assets where the donor receives no goods or services from Boys & Girls Aid in return.  The donor earns an income tax deduction equal to the fair market value of the assets donated.

P

Personal Property Probate
The Process of proving a Will’s validity and the administration of an estate.  The personal property included in an estate can be tangible and intangible.  Tangible—jewelry, artwork, antiques, clothing.  Intangible—stocks, bonds, notes, patents.

R

Real Property
Includes land, buildings, and items attached in a relatively permanent manner (escalators, elevators, light fixtures, hand-rails, etc.

Reasonable Commensurate Value (CRV)
A measure of the present value of a gift annuity’s payments at the time the gift annuity is created.

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 whether 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.

Remainderman
The recipient of a Trust’s proceeds (i.e. Boys & Girls Aid) when the income interest has been satisfied and the Trust terminates.

Retained Life Estate
A donor irrevocably deeds an owned residence to Boys & Girls Aid, but retains the right to live in it for the remainder of life or a term of years.  The donor receives an income tax deduction for the remainder value of the home.  While the donor retains the right to live on the property s/he is responsible for all routine expenses, maintenance fees, home owner association fees, property insurance, property taxes, etc.  When the retained life estate terminates, Boys & Girls Aid can then use the property for the purpose as designated by the donor at the creation of the retained life estate gift.

Revocable Trust
A Trust that can be changed or dissolved at any time by the Grantor.

S

Schedule K-1
An IRS form that reports the income beneficiaries’ share of the Trust’s income.  The trustee of a Charitable Remainder Trust must send the Schedule K-1 annually.

Self-Dealing
A transaction where a provider of value has “undue influence” over the recipient of that value.  The IRS prohibits self-dealing transactions between a donor and the Charity.  Self-dealing transactions will disqualify charitable planned gifts as tax-deductible.

T

Testator
The individual creating the Will.

Testamentary Trust
A Trust established through the Will of a Grantor.

Testate
When an individual dies with a valid Will.

Trust
An arrangement whereby estate 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.  Boys & Girls Aid will act as the Trustee of Charitable Remainder Trusts completed with Boys & Girls Aid.

W

Will
A legal document disposing of a person’s property at the time of his or her death.