Glossary of Terms

Your everyday, plain-language guide to Planned Giving terminology.

Here are some industry terms you should be familiar with so that you can have a meaningful conversation with your donors, attorneys and financial advisors.

Actuarial

As used in planned giving, refers to the factors used to calculate the value of lifetime payments based on the life expectancies of income beneficiaries or the term of years for a trust.


Adjusted Gross Income (AGI)

Your total gross income adjusted downward by specific deductions allowed by the tax code, before taking your standard or itemized deductions. AGI is the number you write at the bottom of page 1 of your 1040. Individuals may deduct charitable cash contributions up to 50% of AGI in any given tax year. For gifts of appreciated property the deductible limit is 30% of AGI in any given tax year.


Annuity

A contractual arrangement to pay a fixed sum of money to an individual at regular intervals. The charitable gift annuity is a gift that secures fixed lifetime payments to the benefactor and/or another individual.


Appreciated Property

Securities, real estate, or any other property that has risen in value since the benefactor acquired it. Generally, appreciated property held by the donor for more than a year may be donated at full fair market value with no capital gains cost.


Appreciated Securities

Investments that have increased in value since they were purchased. These can be publicly traded stock, exchange-traded funds (ETFs), closely held stock, or mutual funds. They can be gifted to a nonprofit organization, which sells them and keeps the proceeds. The donor gets a tax deduction.

Appraisal

A professional assessment of the value of a piece of property. Generally, benefactors contributing real or tangible personal property (books, collectibles, etc.) worth $5,000 or more must secure an independent appraisal of the property to substantiate the value they claim as a charitable deduction.


Appreciated Property

Securities, real estate, or any other property that has risen in value since the benefactor acquired it. Generally, appreciated property held by the donor for more than a year may be donated at full fair market value with no capital gains cost.


Basis

The benefactor’s purchase price for an asset, possibly adjusted to reflect subsequent costs or depreciation. If Mrs. Quinn bought stock for $100 per share and sold it for $175, her cost basis in the stock is $100 per share.


Beneficiary

The recipient of a bequest from a will or a distribution from a trust, retirement plan, or life insurance policy.


Bequest

A transfer of property or cash to an individual or organization under a will.


Capital Gains Tax

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


Charitable Bargain Sale

This is when a donor sells property to a nonprofit for an amount less than the property’s fair market value, and receives a charitable tax deduction equal to the difference between the market value and the sale price. This can sometimes be more financially advantageous to the donor than selling the property, paying taxes, and then making an outright charitable gift from the proceeds of the sale.


Charitable Gift Annuity

Allows the donor to transfer an irrevocable gift of cash or securities to a nonprofit in exchange for a fixed income payment for life. This gift entitles the donor to an immediate charitable income tax deduction. At the end of its term, the CGA balance goes to the nonprofit.


Charitable Lead Trust

After a donor makes a gift, the Charitable Lead Trust pays income to the donor’s designated charity first, for a term of years or for the donor’s lifetime. After that, the trust assets are passed back to the donor or designated beneficiaries.


Charitable Remainder Annuity Trust

Allows a donor to contribute appreciated assets to a trust, generate a fixed income stream, defer or eliminate gains, and reduce estate taxes. A CRAT pays beneficiaries a fixed amount based on the percentage of the initial value of the assets used to fund the trust. Payments can be made for the beneficiaries’ lifetimes, or for a term of up to 20 years, or for a combination of both. No upfront capital gains tax is applied to contributions of appreciated property to an annuity trust. After the annuity trust terminates the balance or “remainder interest” goes to the nonprofit to be used as the donor designated.


Charitable Remainder Unitrust

A charitable trust that pays a percentage of its principal to the donor and/or other income beneficiaries the donor names for life, for a term of up to 20 years, or for a combination of both. Because it is revalued annually, payments may increase over time. The donor receives a charitable income tax deduction for a portion of the value of the assets placed in the trust. After the Charitable Remainder Unitrust terminates, the balance goes to the nonprofit.


Cryptocurrency

Cryptocurrency is a form of digital payment that can be exchanged for goods and services. Usually a donor gives an outright gift of cryptocurrency that the nonprofit sells for cash, but other gifting strategies have emerged that can be more beneficial to both the donor and the nonprofit.


Codicil

A document that amends, rather than replaces, a previously executed will. Amendments made by a codicil may add or revoke a few small provisions (e.g., changing executors), or they may completely change the majority or all of the gifts under the will. Each codicil must conform to the same legal requirements as the original will, such as the signatures of the testator and, typically, two or three (depending on jurisdiction) disinterested witnesses.


Cost Basis

See Basis, above.


Durable Power of Attorney

A legal document that gives a person of your choice the power to handle important matters if you become incapacitated or unable to act on your own behalf. The trusted person you list can do things like pay your bills or make medical decisions for you, depending on the details included in the document.


Endowment Fund

An invested fund owned by a charity, from which the capital appreciation and/or income is used to support the general or specific objectives of that charity’s mission.


Estate Tax

A federal tax on the value of the property held by an individual at his or her death (paid by the individual estate, not the heirs or recipients of bequests). In contrast, state inheritance tax is applied to the value of bequests passing to beneficiaries; it is also paid by the estate before the distributions are made.


Executor

The person named in a will to administer the estate (known in some states as the “personal representative”).


Fair Market Value

The price that an asset would bring on the open market.

Grantor

The individual transferring property into a trust.


Health Savings Account

A savings account that allows the owner to set aside money on a pre-tax basis to pay for medical expenses. If the owner and spouse don’t deplete the HSA during their lifetimes, what’s left becomes taxable income to the beneficiaries. However, the owner can bequeath leftover HSA balances to charity and eliminate the tax issue.

Income Interest

In a trust, the right to receive payments from the trust for the recipients lifetime or a term of years.


Inter Vivos Trust

A trust that is created by an individual while he or she is still living as opposed to a testamentary trust, which is created by a will after someone’s passing.


Intestate

Dying without a legal current will or living trust.


IRA Rollover

Also referred to as a QCD: qualified charitable distribution. Allows donors 70½ or older to make tax-free IRA charitable rollover gifts of up to $100,000 per year directly from their Individual Retirement Accounts to eligible nonprofits. The funds must be transferred directly to the charity; withdrawing them first will result in a tax penalty.


K-1 (also 1099-R)

The IRS forms sent to life-income gift participants detailing how payments they received from their gifts during the year will be taxed.


Life Expectancy

A statistical measure of the average length of an individual’s life.


Life Income Gift

A planned gift that makes payments to the benefactor and/or other beneficiaries for life or a term of years, then distributes the remainder to charity.


Life Expectancy

A statistical measure of the average length of an individual’s life.


Life Income Gift

A planned gift that makes payments to the benefactor and/or other beneficiaries for life or a term of years, then distributes the remainder to charity.


Life Insurance

A donor can designate a charity as a policy beneficiary. When the time comes, the nonprofit receives the proceeds. This allows the donor to provide a large gift to benefit a nonprofit — often more than they’d be able to donate outright. The donor’s heirs benefit as well, because policy proceeds distributed to a nonprofit are exempt from estate tax.


Living Will

Also called a health-care directive, this is a legal document that states a person’s wishes about medical care in the event that person is unable to speak for themselves.

Personal Property

Gifts of items such as artwork, collectibles, books, equipment, or other items of tangible personal property. Most times, a gift yields the donor a charitable deduction for the items’ fair market value (it must be professionally appraised), with no capital gains liability to the donor or organization. The nonprofit can either keep the property, display it, or sell it and use the proceeds.


Personal Representative

See Executor, above.


Planned Gift

A method of supporting charities that enables generous individuals to make larger gifts than they could make from their income. While some planned gifts provide a lifelong income to the donor, others use estate- and tax-planning techniques to provide for charity and other heirs in ways that maximize the gift and/or minimize its impact on the donor’s estate.


Pooled Income Fund

A donor’s gift is pooled with gifts from other donors who support the same nonprofit, and then invested to pay each donor a quarterly income calculated from their share of the fund. As each participant passes away, the nonprofit receives a gift in the amount of that donor’s share of the fund. Donors can avoid capital gains tax by using appreciated assets for their gift.


Present Value

The value on a given date of a future payment or of a series of future payments, discounted to reflect the time value of money based on various factors such as investment risk and inflation.


Probate

The review or testing of a will before a court to ensure that the will is authentic and the estate is distributed properly. A good estate plan minimizes the cost and time needed for probate.


Remainder Interest

In a trust, the portion of the principal left after the income interest has been paid to the beneficiary(ies). A charitable remainder trust pays income to the benefactor or other individuals and then passes its remainder to charity.


Remainderman

A legal term for the individual or organization who receives the trust principal after the income interest has been satisfied.


Real Estate

A donor can gift real estate to a nonprofit, removing a large taxable asset from their estate and benefiting by receiving an income tax deduction equal to the appraised fair market value of the property, with no capital gains tax due on the transfer. The nonprofit can then sell the real estate or keep it for its own use.

Retained Life Estate

A donor transfers a property deed — residence, vacation home, farm, etc. — to charity, but retains the right to use (including rent out) or live in the property for life or a term of years. In exchange, the donor receives an immediate income tax deduction based on the fair market value of the property minus the present value of the retained life estate. The donor must cover any expenses and maintenance costs associated with the property during their lifetime.


Retirement plans

A donor can name a nonprofit as the beneficiary of a portion or all of his/her IRA, 401(k), or other Retirement Plans. When the donor’s estate is settled, the amount designated passes to the nonprofit and the donor’s heirs avoid income and estate tax.


Revocable Living Trust

A trust you create during your life, titling all or selected assets to the trust, which will be managed by a trustee. It is called “revocable” because you can terminate the trust at any time during your life. You can serve as the trustee during your life if you wish. When you pass away, the trust will distribute or continue to manage the assets in accordance with your wishes.

Testamentary Trust

Refers to a trust that is created in a will after someone’s passing as opposed to a living or inter vivos trust, which is created by a living grantor.


Trust

A legal entity created by a written agreement by a grantor to hold and invest property for the benefit of the grantor and/or other beneficiaries.


Trustee

An individual or organization carrying out the wishes of the person who established the trust (the grantor), paying income to the beneficiaries, and preserving the principal for ultimate distribution.