A Tax-Smart Giving Glossary for the Savvy Donor

April 24, 2017 4:07 pm Published by

With April’s tax deadline behind us and the end of Financial Literacy Month approaching, we think it’s a great time for donors to review this helpful glossary to ensure that your generosity pays off during tax season.

Adjusted Gross Income (AGI) An individual’s total income for the year, less certain deductions.  Individuals may deduct cash contributions up to 50% of AGI; they may deduct gifts of appreciated property up to 30% of AGI.

Administrator The person appointed by the court to manage one’s estate when he or she dies without leaving a Will.  Administrators have the same duties as executors.

Annuity A contract, legal obligation, to pay specified amounts over a specified period of time to a specified individual in exchange for cash, securities, or other tangible property.

Appraisal An assessment of the value of a piece of property, generally required for tax deductions over $5,000.  Donors contributing real or tangible personal property (art, books, collectibles, etc.) must secure an independent appraisal of the property to substantiate the fair market value they claim as a charitable deduction.

Appreciated Property Examples include real estate or stock that has increased in value. Such assets would, if sold by an individual or non-charitable organization at a price higher than their basis, potentially generate a taxable gain.

Basis The donor’s purchase price for an asset, possibly adjusted to reflect subsequent costs or depreciation. For example, if you bought a stock for $100 per share and sold it for $165 per share, your basis would be $100.

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

Bequest A gift or legacy left by a Will.

Capital Gains Tax A federal tax on the appreciation in an asset between its purchase and sale prices.

Charitable Gift Annuity A legal contract with a charity under which an individual, in exchange for a gift of cash or other assets, will receive fixed payments for life.

Charitable Trust A trust having a charitable organization as a beneficiary.

Codicil A legal instrument made to modify an earlier Will.

Corporate Fiduciary An institution that acts for the benefit of another. An example is a bank acting as a trustee.

Donor Advised Fund A separately identified fund maintained and operated by the Foundation. Once the donor makes the contribution, they receive an immediate tax benefit. The organization has legal control over the fund, however, the donor retains advisory privileges with respect to the distribution of grants over time.

Endowment An endowment is a permanent fund designed to grow over time, giving an ever-increasing amount to charitable organizations, fields of interest, scholarships, or awards. The principal of the endowment fund remains invested while a portion of the investment return is distributed each year.

Estate Tax A tax on the net value of property subject to tax (“taxable estate”) plus the sum of “adjusted taxable gifts” at the time of a person’s death. It is based essentially on the right to transfer or transmit.

Fair Market Value If you donate personal possessions or property to a charity, you can take a tax deduction for the property’s fair market value on the date of your contribution. This requires an itemized receipt from the charity, regardless of their value. Generally, a qualified appraisal is needed for property valued higher than $5,000, but there are exceptions.

Fiduciary A person or institution legally responsible for the management, investment, and distribution of funds. Examples include trustees, executors, and administrators.

Gift Tax A tax on the donor of gifts made during their lifetime, 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 in at the time of death, including life insurance, or partial interests in joint property, and transfers intended to take effect at or after death, or when the power to change the enjoyment of the property has been retained.

Intestate When a person dies without a Will.

Irrevocable Trust A trust that cannot be changed or dissolved.

Legacy A disposition of personal property by a Will.

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

Life Income Agreement A gift of a principal sum, property, or securities with a stipulated life income paid to the donor or another person for his or her lifetime(s).

Life Income Trust A plan whereby gift assets are place in trust for the lifetime benefit of an income beneficiary, with the remainder going to another beneficiary.

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

Personal Property Tangible – jewelry, antiques, clothing, artwork, etc. Intangible – stocks, bonds, notes, patents, etc.

Probate The process of proving a Will’s validity; the administration of an estate.

Real Property Includes land, buildings, and items attached in a permanent manner (light fixtures, elevators, etc.)

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 that takes place in the future.

Revocable Trust A trust that can be changed or dissolved by the grantor.

Tax-Deductible Contribution A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions.

Testamentary Trust A trust established through the Will of the grantor.

Testate Dying with a valid Will.

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

Trustee The party legally responsible for carrying out the terms and performance of a trust.

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

 

Source: This glossary was adapted and used with permission from Kathy Laing, University of Richmond, Institute of Philanthropy.

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This post was written by Kiffy Werkheiser

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