Planned Giving Glossary

• Bequest – A gift of money or property to an individual or organization under the terms of a decedent’s will.

• Charitable lead trust – An irrevocable trust that pays income to a charity for a set period of time. At the end of that time, the remaining assets are distributed to the donor or other beneficiaries.  To qualify the lead interest for an income tax charitable deduction, the “income” interest must be defined as a fixed annuity or unitrust amount.

• Estate – Everything that makes up your net worth – real estate, personal possessions, business interests, and financial assets – essentially, everything of value that you own, minus any liabilities (remaining mortgage, credit card debit, loans, unpaid taxes, etc.).

• Estate planning – The process by which a person decides on a strategy and creates a will, trust, and/or other legal agreement to provide for the administration and disposition of their assets if they become incapacitated, or upon their death.

• Estate tax – The ‘final tax” which is levied against your transferred assets at death. There are both federal and state estate or inheritance taxes to consider.

• Estate tax exemption amount – The aggregate amount that an individual can transfer, during life and at death, before incurring gift or estate taxes. Annual exclusion gifts do not count toward this total.

• Executor – A person appointed under a decedent’s will to administer his or her estate.

• Irrevocable Trust – A trust that cannot be modified or revoked by the settlor.

• Living will – A document that details your final wishes and further explains the distribution of your will.

• Living trust – Technically called a “revocable” trust. A legal arrangement in which a designated person, a trustee, is given responsibility for managing your assets for the benefit of your beneficiaries, during life and after your death.  The difference between a will and a living trust is that the trust bypasses probate, allowing the trustee to carry out your instructions as documented in your living trust at your death or if you become unable to manage your financial, healthcare, and legal affairs.

• Nonprofit – An organization that exists for purposes other than generating profit, and which does not distribute income or assets to shareholders, members, directors, or officers. Typically used to refer to a tax-exempt charity and included in numerous sections of the federal Tax Code, including Section 501(c)(3).

• Percentage Bequest – A bequest under a decedent’s will or revocable trust expressed in terms of percentage or fraction of the residue, rather than a dollar amount. A transferor who is worried about possible fluctuations in the value of his or her estate might choose to make a percentage bequest to a particular beneficiary, rather than a general bequest.

• Planned Gift – A charitable gift that requires the participation of legal and/or financial planners to execute. Typically, these involve larger amounts, and typically the benefit to charity takes effect at the transferor’s death.  Examples include a charitable bequest under the transferor’s will or revocable trust, a charitable gift annuity, and a charitable remainder trust.  Each of these allows the donor to continue to receive income from the transferred property during life.

• Qualified Charitable Distribution – A provision in the federal tax code allows a participant in a traditional IRA who is aged 70 ½ years or older to donate up to $100,000 per year directly from a taxable IRA to one or more qualified charities, rather than taking a taxable required minimum distribution. Because the QCD is not treated as income to the participant, there is no income tax charitable deduction.

• Required Minimum Distribution – Minimum yearly withdraws from a qualified retirement plan, including a traditional IRA, that as of 2020, are required to begin in the year the participant reaches age 72.

• Residuary Bequest – Donations that come from the “left over” assets from an estate. Some bequests detail that after the value of everything else is distributed, what remains goes to one or more charities or individuals, without listing a dollar amount or property details.

• Residue – The assets or property that remain in a decedent’s estate after all the estate’s debts, taxes, and expenses are paid, and after all specific gifts have been distributed according to the will. Also called a residuary estate.

• Revocable Trust – A trust that the grantor can terminate, revoke, modify, or amend.

• Tenancy by Entirety – Joint ownership of an asset by spouses in non-community property states, in which both own the asset equally. The asset may not be sold or gifted without the approval of both while spouses are alive.  When one spouse dies, the survivor succeeds to sole ownership.

• Tenancy in Common – Ownership of property by two or more owners, without a right of survivorship. Shares may be unequal, and each owner’s interest can be separately sold or mortgaged, without the consent of the other owner(s).  At the death of each tenant, his or her share passes to his or her heirs under the terms of his or her will.

• Trust – A legal arrangement under which a third party, called a trustee, holds assets on behalf of one or more beneficiaries.

• Trustee – A legal document that dictates the terms of how the trust is to be managed and distributed.

• Will – A legal document that details the distribution of a decedent’s property to designated individuals or entities. State law typically requires that a will be signed by the testator in the presence of two witnesses who are not beneficiaries under the will.  A will may designate the decedent’s preference for appointment of a guardian for his or her minor children, and the court will typically respect that preference.