Glossary of Terms
- A -
Annuity Trust
An
annuity trust is a type of charitable remainder trust that pays
the same amount every year. This annual amount is determined when the
trust is established and must be at least 5% of the initial fair market
value of the trust’s assets.
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- B -
Bargain Sale
A
bargain sale is part gift and part sale. A donor can give appreciated
property to the College at a “bargain” price. Because of
the less than fair market value sales price, the donor reports a smaller
capital gain and receives a charitable income tax deduction for the
net value of the gift. (Note: under current tax law, each individual
has a $250,000 capital gain exemption on the sale of a primary residence.)
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Bequest
With a bequest
a donor can name Dartmouth College in one's will as the recipient of
all or a part of his or her estate at death.
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Beneficiary
The person or persons whom you designate to receive the benefits
or proceeds of your financial instruments.
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- C -
Charitable Gift Annuity
A
gift annuity is a contract between a donor and Dartmouth College
that will provide a fixed income for the life of the donor or other
designated beneficiary. The program is backed by the total assets
of the College. There are no management fees or investment worries.
Rates offered are based on the annuitant’s age at the time of
the gift. Payments are made quarterly, and a substantial portion of
each payment is received tax free.
Gift annuities generate an immediate charitable
income tax deduction. Capital gains are reduced dramatically and can
be reported over a number
of years so that those taxes are not due all at one time.
Annuities based
on two lives are also available, but the rates are generally lower.
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Charitable
Lead Trust
A charitable lead trust is
the opposite of a life income gift arrangement: the donor places assets
in trust, and the trust generates
annual income
for charity over a period of years. After a specified length of time,
the assets come out of the trust and become the property of the donor’s
heirs.
The lead trust is a valuable means of transferring assets to
heirs at reduced gift and inheritance taxes. Although the donor will
likely pay
gift taxes (and possibly generation-skipping taxes) upon creating
the trust, the assets in the trust will grow tax-free during its term,
which is typically 20 years. When the heirs receive the assets at
the
end of
the trust term, there will be NO inheritance taxes
applied to that transfer.
The donor can name multiple charitable beneficiaries
to receive payouts
from the trust during its term. The donor can also use non-cash income-producing
assets to fund the trust. Commercial real estate is a good example
of a non-cash asset that can be passed to younger family members through
a charitable lead trust.
Charitable lead trusts are complex and require
advice from experienced attorneys.
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Charitable Remainder Trust
Charitable remainder trusts are flexible instruments
that enable donors to:
- Claim a charitable tax deduction in the year the
gift is made
- Provide an income stream for themselves
or someone else
- Remove assets
from their taxable estate
- Make a significant gift to one or more
charities
A donor can place
an asset in a trust and designate a trustee to manage the trust.
From that trust, the donor (or a person that the donor has
named) receives a specified sum at set intervals—usually every
quarter. When the donor or beneficiary dies, or after the predetermined
number of years, what’s left in the trust (the “remainder”)
goes to Dartmouth College and/or other charitable organizations.
The annual payments differ according to the kind of trust.
An annuity trust pays the same fixed dollar amount every
year. This annual amount is determined when the trust is established
and must be at least 5% of the initial fair market value of the trust’s
assets.
A standard unitrust pays a variable amount each year.
The amount is equal to a predetermined percentage of the fair market
value of the trust that year, at least 5%.
A net income unitrust also pays a variable amount each
year. The amount is equal to the net income produced by the trust that
year or a predetermined percentage of total assets, whichever is smaller.
In addition, a trust provision can be added to provide that payments
may be increased in some years to make up for the earlier years when
net income was lower than the predetermined percentage.
A “flip” trust is a hybrid of a net income
trust and a standard unitrust. This vehicle is especially useful when
funding a trust with an illiquid asset such as real property or tangible
personal property. Until the asset is sold, the trust only pays the
lesser of the net income or the stated payout rate. Once the illiquid
asset is sold, the trust “flips” and begins to act like
a standard unitrust paying the stated payout rate.
Trusts
are very well suited for gifts of cash and appreciated securities,
and can also be funded with real estate, privately held stock or
other non-cash assets.
Charitable remainder trusts allow donors flexibility
in that they may choose their own payout rate and their own trustee.
The minimum payout
rate allowed by law is 5%.
The Dartmouth program offers both unitrust
(variable income) and annuity trust (fixed income) options. Unitrust
income is calculated by applying
the payout rate to the value of the trust assets at the beginning
of each year, allowing the beneficiary’s income to keep pace with
growth in the assets over time. Annuity trust income is determined
at the time the trust is funded by applying the payout rate to the
initial
value of the trust.
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Cost Basis
Cost basis is the amount you pay for an asset such as shares
of stock or real estate. This figure is used to determine how much appreciation
(capital gain) you have in an asset.
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- D -
Deferred Gift Annuity
A
deferred gift annuity provides a fixed income for the life of the
donor or another designated beneficiary. It is similar to a charitable
gift annuity except the beneficiary’s income payments are deferred
to a later date. That provides a higher charitable tax deduction when
the gift is made and locks in a higher payout rate. For example, a 50-year
old donor agrees to make a gift now, but defers receiving payments until
she/he reaches age 65 when it will serve as supplemental retirement
income. The deferral of payments locks in a higher fixed rate.
The gift assets are backed by the
total assets of the College. There are no management fees or investment
worries for donors. The minimum gift amount is $10,000. Annuity payments
are determined by three things:
- Age of the beneficiary at the time of the agreement
- Age of
the beneficiary when payments begin
- Length of deferral (The longer
the deferral, the higher the rate.)
- Deferred gift annuities based on two lives are also available,
but at lower rates.
A substantial portion
of each payment is tax-free. Even though the beneficiary does not start
receiving payments until a pre-selected
future date, a
portion of the gift is immediately deductible for federal income
tax
purposes on an itemized return. Capital gains are reduced and
can be reported over a number of years (if the donor is also
the income beneficiary).
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- E -
Estate Tax
Estate tax is levied on transfers
of wealth that happen at death. Currently an individual can leave $1.5
million to others before triggering an estate tax. That threshold will
increase to $2 million in 2006; to $3.5 million in 2009; and in 2010
the estate tax will be repealed entirely. On January 1, 2011 estate
taxes will be reinstated for estates above the $1 million level.
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- F -
Flexible Gift Annuity
A flexible gift annuity is structured so that the
annuitant has control over the date at which payments begin. This may
be a
good gift vehicle
for those who are unsure of their retirement date.
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Flip Trust
A “flip” trust is a hybrid of a net income trust
and a standard unitrust. This vehicle is especially useful when funding
a trust with
an illiquid asset such as real property or tangible personal
property. Until the asset is sold, the trust only pays the lesser of
the net income
or the stated payout rate. Once the illiquid asset is sold, the
trust “flips” and
begins to act like a standard unitrust paying the stated payout
rate.
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- G -
Gift Annuity
A
gift annuity is a contract whereby the donor makes a gift to the
College and, in turn, Dartmouth promises the donor, or another specified
beneficiary, a fixed dollar payment every year for life. The yearly
payment is based on the amount of the gift and the age of the income
beneficiary at the time of the gift. Gift annuities may be for one or
two lives.
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Gift Tax
Gift tax is levied on gifts
to non-charitable beneficiaries. Currently, an individual can give away
$11,000 each year to any number of individuals without being subject
to gift tax. Transfers over and above that $11,000 may be subject to
gift tax.
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- H -
- I -
- J -
- K -
- L -
Living Trust
A living trust is a document with which you direct the transfer
of your assets at your death. A living trust helps assets pass
outside
of the
probate process, can continue after your death, and is revocable
at any time.
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Living Will
A living will is a document that expresses your decision
as to whether your life should be prolonged by artificial means if
you are suffering
from a condition in which additional medical procedures would
only artificially delay death. This instrument directs your family
and physicians
to honor
your intentions and acknowledges your acceptance of the consequences
of refusing further treatment. You may specify which medical
interventions you do or do not wish to be used, and under what
conditions.
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Long-Term
Assets
An asset held long term is
any asset that you have held longer than one year.
Pooled
Income Funds
A gift is pooled with other
contributions in a professionally managed fund. The donor or other beneficiary
receives a proportionate share of the fund’s annual income for
life. The income varies depending on how much the fund earns and the
number of shares the donor holds in the pool. Dartmouth
College has three pooled income funds. The Samson Occom Pooled Income
Fund seeks significant long-term growth of income. This fund provides
the highest tax deduction and potential growth of income of any of the
pools. The John Ledyard Pooled Income Fund provides moderate growth
of income and an ample current yield. The Old Pine Pooled Income Fund
is designed to provide a generous current yield and a high degree of
safety from market uncertainties. This fund is particularly appealing
and appropriate for older beneficiaries.
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- M -
- N -
- O -
- P -
Power of Attorney
You can name someone—not necessarily an attorney—to
make financial and other important decisions for you in case you become
mentally or physically incapacitated. Unless this document
exists, the court can
appoint someone to make these decisions for you.
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Probate
Probate is a judicial process
in which ownership and distribution of assets are reviewed. Probate
can be costly and time consuming and the court's proceedings are, by
law, a matter of public record. Ways to avoid probate include
assignment of life insurance, placing assets in a revocable trust, establishing
joint tenancy with rights of survivorship, and designating beneficiaries
on retirement accounts.
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- Q -
- R -
Rates
Dartmouth
College’s charitable gift annuity rates are based on the recommendations
of the American Council on Gift Annuities, a national non-profit organization
that uses detailed actuarial research into life expectancies to publish
suggested annuity rates for charities. In some cases, Dartmouth’s
chief financial officer adapts the ACGA recommendations to best suit
the needs of the College and its donors.
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Remainder Interest
See below “Retained Life Estate”.
Retained Life Estate
With
retained life estate plans a donor can give a personal residence,
such as a home or condominium, to charity and retain use of the property
for the remainder of her/his life. The donor continues to occupy the
property yet takes a charitable income-tax deduction for the “remainder”
interest given to charity. The donor continues to be responsible for
taxes, insurance and maintenance on the property until his/her death.
If the donor chooses to move out of the property, the gift is accelerated
and the donor can claim an additional charitable tax deduction.
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- S -
Split-Interest
Gift
A split-interest gift is any
gift in which a portion is assigned to charity and a portion benefits
the donor or his/her designee. Charitable
gift annuities, pooled income funds, and charitable remainder trusts
are all varieties of split-interest gifts.
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Step Up
A “step up” in
[cost] basis refers to the value of property received from an estate
which will have a cost basis equal to the asset's value at the time
of death (or six months after death, depending on the choice of the
executor in filing federal estate tax returns). This value could well
be higher (stepped up) than the original purchase price of the property
and would be the basis for determining any future capital gains.
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- T -
Tangible Personal Property
The IRS defines tangible personal property
as “any property,
other than land or buildings, which can be seen or touched.
It includes furniture,
books, jewelry, paintings, and cars.”
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- U -
Unitrust
A
standard unitrust pays a variable amount each year. The amount is
equal to a predetermined percentage of the fair market value of the trust
that year (at least 5%). A net income unitrust also pays a variable
amount each year. The amount is equal to the net income produced by the
trust that year or a predetermined percentage of total assets, whichever
is smaller. (Trust provision can provide that payments may be increased
in some years to make up for earlier years when net income was lower than
the predetermined percentage.)
- V -
- W -
- X -
- Y -
- Z -
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
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