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CTFA - Finance
| Term | Definition |
|---|---|
| abatement | The reduction of a gift (bequest) in a will because the estate’s assets are insufficient to satisfy all the bequests after the estate’s debts, claims and taxes have been paid; all gifts of the same class abate proportionately unless provided otherwise. |
| abstract of trust | A document that briefly outlines a trust’s key provisions and existence; also called an affidavit of trust |
| A/B trust plan | A trust arrangement in which a trust splits at the grantor’s demise into two trusts: an “A” (marital) trust and a “B” (by-pass trust) for the purpose of minimizing federal estate taxes upon the surviving spouse’s death |
| ademption | The act of a testator that causes an extinguishment or withdrawal of a legacy in a will because the asset does not exist at the time of death. |
| adjusted gross estate | The value of the gross estate minus all allowable deductions for expenses, debts, state and foreign taxes (but not federal estate taxes), and losses |
| adjusted gross income (AGI) | An individual’s total income (i.e., wages, interest, dividends, business income, pensions, Social Security benefits) minus deductions (i.e., certain business expenses, moving expenses, IRA contributions, tuition). |
| agency | An account relationship between two parties: a principal and an agent; title to and ownership of the property, remains with the principal; the agent acts on behalf of the principal and is charged with certain duties with respect to the property. |
| alternate valuation date | A date six months following a decedent’s death; an estate is valued by its executor as of the date of death or the alternate valuation date; be chosen only if the estate’s value at that time results in a lower federal estate tax. |
| annuity | A fixed or variable amount payable annually or at regular intervals for a given period, such as for a stated number of years or for the life of the annuitant (the one receiving the annuity payment). |
| applicable credit amount | The amount (in tax dollars) that applies against federal estate taxes; this is the amount of taxes calculated on the applicable exclusion amount by using the unified transfer tax rate schedule; also called a unified credit |
| applicable federal rate (AFR) | The statutory interest rate that must be charged for most loans and installment agreements to avoid imputation of income; the AFR is determined monthly by the Department of the Treasury. |
| apportionment | The division, distribution or disbursement of property among two or more accounts or individuals, as between principal and income. |
| asset allocation | A method of determining the percentages assigned to various investment classes (i.e., stocks, bonds, cash) within a fund or portfolio dependent on one’s investment objectives and risk tolerance. |
| asset protection trust | An irrevocable trust designed to keep the trust’s assets free from the grantor’s creditors, litigation against the grantor and a grantor’s child support obligations absent the grantor’s hindrance of such on or before establishing and funding the trust. |
| attorney in fact | A person, acting as an agent, who is authorized in writing to act and transact business for another outside court; also see power of attorney |
| attorney at law | A person who is legally qualified and authorized to represent another in legal proceedings. |
| basis | The original price or cost of an asset, usually based on the purchase price or, in the case of assets received from an estate, on the appraised value of the assets at the death of the donor; also called cost basis. |
| blind trust | Tr property that is invested and managed w/o the grantor’s knowledge of the property who enjoy the benefits of a trust used to avoid conflicts of interest that are related to the assets of the trust. |
| bomb clause | A provision in a trust that provides direction for the distribution of a trust’s corpus upon the death of the last of the grantor, grantor’s spouse and all descendants |
| by-pass trust | A taxable trust funded with an amount equal to the applicable exclusion amount; often provide benefits to a decedent’s surviving spouse, avoiding inclusion in that spouse’s estate; property in this trust can thus pass to descendants with no estate tax; |
| capital | The amount of funds invested into a company on a long-term basis; these funds may come from borrowing from a bank or from bond debt (debt capital), and funds may come from issuing stock (equity capital). |
| charitable lead annuity trust (CLAT) | A CLAT in which an annuity is paid to one or more charities for a set term or the life or lives of one or more individuals with the remainder passing at the termination of the trust to one or more individuals (noncharitable beneficiaries). |
| charitable lead trust | A trust wherein a charity is the beneficiary of an annuity or unitrust payment during the donor’s life with the remainder going to a noncharitable beneficiary upon the end of the trust. |
| charitable lead unitrust (CLUT) | A charitable lead trust in which a fixed % of trust assets, valued annually, is paid to 1+ charities for a set term of years or lives of individuals with the remainder passing to one or more individuals (noncharitable) at the termination of trust. |
| charitable remainder annuity trust (CRAT) | Tr pays stated annuity amount annually to noncharitable bene of not less than 5% nor more than 50% of the initial FMV of the initial funding of trust; a fixed $ amount; at the end of the trust’s period the remainder is paid to charity. |
| charitable remainder trust | An arrangement wherein income is paid to noncharitable beneficiaries during the term of the trust and the remainder interest goes to a legal charity upon termination or failure of a prior interest. |
| charitable remainder unitrust (CRUT) | Tr pays a fixed % of not less than 5 percent nor more than 50 percent of net FMV of property, valued annually, distributed at least annually to a noncharitable beneficiary, with the remainder to a qualified charity at the end of the trust’s period. |
| Chinese wall | Name for the barrier between the commercial banking department and trust department of a bank that is designed to prevent the sharing of information between the departments |
| churning | The creation of an excessive amount of investment transactions (buys and sells) for the benefit of creating sales commissions. |
| closely held business | A corporation that is owned by one or a few persons, such as a family; this business is not one of a public nature and is not traded on any centralized securities trading exchange. |
| common trust fund | A pooled fund of money or securities maintained by a bank trust company for the common and exclusive investment; also called a pooled fund, commingled fund, collective investment fund and personal investment fund. |
| compliance | The act of conforming to laws and regulations; for example, trust departments must comply with statutes set in place by regulatory bodies such as the Office of the Comptroller of the Currency (OCC) in the conduct of their business as a fiduciary. |
| conservator | A term used in certain jurisdictions as an individual or institution appointed by a court to care for and manage the property of an incompetent individual who is not a minor; also called a tutor. |
| conformed copy | Not an original document; a copy of an original document on which the signatures, seals and other written features are typed or handwritten, therefore indicating the document’s originality. |
| constructive receipt | Income not yet physically received but set aside or available to an individual, allowing the individual to draw on it at any time; once available the income is taxable regardless of whether it is taken or not. |
| constructive trust | A trust that is created by a court to benefit a party that has been wrongfully deprived of its rights; these trusts do not depend on the intention of the parties involved; they constitute a useful equitable remedy in cases involving unjust enrichment. |
| Consumer Price Index (CPI) | This is a measure of the average change (inflationary or deflationary) in prices over time of all goods and services purchased for consumption by urban households. |
| conversion | The change of property from one form to another (e.g., from real property to personal property); this is a physical change of the nature of the property, not an exchange. |
| conveyance | The transfer of the title, by act or document, of real property from one owner to another. |
| Crummey notice | A notice provided to a beneficiary of a trust that gives the beneficiary a limited, noncumulative power of withdrawal over trust property that ordinarily lapses within a specified period of time; |
| cy pres | establishes that when a testator or settlor’s gift to or for a charitable entity cannot be carried out to the letter, the court will direct that the gift be made as nearly as possible, in its judgment, in conformity with the intention of the donor. |
| decanting | A permissible discretionary action (not authorized by all states) that allows a trustee out court order and without prior consent of any beneficiary – to appoint/distribute some or all the assets of one trust (referred to as a “distributing trust”) to an |
| deferred compensation | The contractual postponement of payment for services rendered until a future date; used more commonly with respect to retirement benefits (qualified or nonqualified) paid in the future. |
| defined benefit plan | A plan that ensures the payment of a specified, predetermined pension benefit at the time of retirement; the plan requires annual contributions that are actuarially determined to meet the benefit. |
| defined contribution plan | A plan that provides a nondetermined pension benefit at the time of retirement; the benefit depends on the fixed, annual contributions, investment gains or losses, and expenses. |
| directed trust | Also called a nondiscretionary account; the investment decisions in this account are made by someone other than the trustee; the trustee is accountable for carrying out the directed investment instructions. |
| disclaim | A denial or disavowal of any interest in or claim to a lifetime gift, testate or intestate distribution or trust dispositive provision; a disclaimer is a renunciation of any title, claim or interest; a disclaimer can be qualified or not qualified |
| diversification | The spreading of investments within an asset class; for example, mixing industries among common and preferred stocks and determining the types, ratings, maturities and taxability of bonds. |
| employee benefit plan | A plan established by an employer in which fringe benefits are provided to the employees; examples of these benefits are retirement plans, medical, sickness, dental and disability benefits, life insurance and sick pay. |
| employee benefit trust | A trust established to manage the assets of an employee benefit plan. |
| Employee Retirement Income Security Act (ERISA) | Federal legislation (1974) federal minimum standards for private employee benefit plans, including standards regulating the conduct of a plan’s fiduciaries and trustees; |
| Employee Retirement Income Security Act (ERISA) - part 2 | added to Prudent Man Rule the requirement that trustees adhere to the investment standards of a person knowledgeable and experienced in investments |
| Employee Retirement Income Security Act (ERISA) - part 3 | Act also established an insurance program designed to guarantee workers some pension benefits if their defined benefit pension plan should end; in addition, this Act established requirements for reporting, disclosure and vesting. |
| employee stock ownership plan (ESOP) | A qualified retirement plan in which all or a majority of the plan’s assets are securities of the employer. |
| equitable ownership | The beneficial interest a person has in property, such as a beneficial right to the assets of a trust; the legal ownership of the property vests in another, such as a trust; also known as beneficial ownership; also see legal ownership. |
| equitable title | A right to the benefits of property, enforced in a court of law |
| equity | 1. Another word for stock; the value of a stockholder’s interest in a corporation. 2. The market value of real property minus any mortgage or indebtedness. 3. Total assets less total liabilities equals equity (net value or net worth). |
| escrow account | An agency relationship in which securities or assets are deposited by two or more persons or institutions with a third party to be delivered in the future contingent on a certain event. |
| estate administration | management of a decedent’s estate by an executor or administrator; an estate may be managed under the watchful eye of the probate court (supervised administration), on a non-court-supervised basis (independent administration), or quickly for small estates |
| estate settlement | The final reporting and distribution of an estate by an executor or administrator. |
| estate tax | A federal or state tax imposed on a decedent’s estate and not on the distributive shares of the estate; also called a transfer tax; also see inheritance tax. |
| exculpatory language | A provision of immunity in a will or trust that attempts to – or does – relieve the executor or trustee from liability for the alleged breach of its fiduciary duties. |
| executor | An individual or trust institution nominated in a will and appointed by the court to settle the estate of a decedent |
| express trust | Tr that arises when a property owner purposely expresses his/her intention to create a trust relationship with respect to his/her property; this trust is manifested by words, writing or conduct |
| fair market value | The amount arrived at by a willing buyer and a willing seller. |
| family limited partnership (FLP) | LP family members (blood or marriage) created to limit partners’ control over P; the P is used to consolidate management of the assets of the fam & pass property to junior fam, reduce in certain partners’ value in the partnership via valuation discounts. |
| fee simple | estate of inheritance w/o limitation to any class of heirs & w/no restrictions upon transfer of title to property by legal conveyance; largest interest or estate in real property a person may own; sometimes equated to sole ownership of real property. |
| fiduciary | An individual/institution charged with the duty of acting in good faith and fairness on behalf – and for the benefit – of another w/in the relationship, |
| five-or-five power | A provision in a trust allowing a noncumulative annual distribution from the trust of the greater of five percent of the trust’s value or $5,000. |
| 529 plan | college savings account the Internal Revenue Code permits universities and states to establish that provides several tax benefits, including a five year acceleration of annual exclusion gifts; also known as a qualified state tuition program (QSTP). |
| 401(k) plan | A qualified retirement plan in which an employee’s income is reduced (as opposed to a deduction) in order to provide for a contribution to the plan; the employer may or may not match the employee’s contributions. |
| 403(b) plan | A qualified retirement plan (similar to a 401(k) plan) established for educators, healthcare workers, and employees of religious institutions and nonprofit organizations. |
| fund | A group of assets segregated or commingled for a specific investment purpose; also see mutual fund and collective investment fund. 2. (v.): To place assets into a trust, business or retirement plan. |
| future interest | Any interest in property wherein the right of possession and enjoyment is postponed until some future date or until the occurrence of some event |
| general partnership | A partnership created by 2+ person who agree to place their money/effort/skill in a business & to share profits and losses; all partners are subject to unlimited joint and several liability, both personally and for the actions of other partners. |
| general power of appointment | The power of a donee (the one who is given the power) to pass on an interest in property to whomever he/she pleases, including himself/herself or his/her estate. |
| gift split | An action in which one spouse consents to give his/her annual exclusion to the other spouse, thereby allowing the other spouse to double his/her annual exclusion amount |
| gift tax | A tax imposed by the federal government, and by some states, on transfers of property by gift during the donor’s lifetime; gifts under this law may include irrevocable living trusts; also called a transfer tax |
| grantor retained annuity trust (GRAT) | Tr in which the gr retains right to an annual $ amount (the annuity) for a fixed term & gives the principal to others, at the end; if grantor survives until end of annuity, all principal will be excluded from the grantor’s estate for death tax purposes. |
| grantor retained income trust (GRIT) | Tr the grantor retains right to all income for a fixed term & gives the principal to others, at end of term; if the grantor survives the trust principal will generally be excluded from the grantor’s estate for death tax purposes |
| grantor retained income trust (GRIT) - part 2 | trust pr is limited primarily to the grantor’s personal residence; the income from the trust relates to the grantor’s use (excluding income from renting) of the personal residence; also called a house GRIT or a qualified personal residence trust (QPRT). |
| grantor retained interest trust | Tr grantor retains the right to an annuity, unitrust or total income payment for a fixed term and gives the principal to others at the end of the term; if the grantor survives all of the trust P will b excluded from grantor’s estate for death tax purposes |
| grantor retained unitrust (GRUT) | Tr which gr retains for a fixed term to receive a yearly $ equal to a fixed % FMV trust property, valued annually, and gives the principal to others at the end; if the grantor survives until end the tr principal is excluded from Gr’s estate for death tax. |
| grantor trust | income taxation, this trust the grantor, certain rights to i/p or certain power over the disposition of i/p, is treated as the owner of the tr and is taxed on the income thereof; a grantor trust is not treated as a separate entity for income tax purposes; |
| gross estate | All of a person’s property before debts, taxes and other expenses or liabilities have been deducted; this term is mostly used at death; to be distinguished from an adjusted gross estate |
| guaranteed interest contract (GIC) | Used in retirement plans, a contract issued primarily by insurance companies, in which the interest paid on the funds is guaranteed for a given period of time, somewhat like a certificate of deposit. |
| guardian | An individual/institution appointed by court to care for property (guardian of the estate) or the person (guardian of the person) of a minor or an incompetent adult |
| holographic will | A will written entirely in the handwriting of the testator and not witnessed. |
| homestead | Land and buildings on the land occupied by the owner(s) as a home. |
| incapacitation | The legal term for a person’s inability to act on his/her own behalf because of medical reasons, minority, addiction to drugs or alcohol, imprisonment, mental illness or disappearance |
| incidence of ownership | With respect to a life insurance policy this is the rights of an insured to the economic benefits of the policy, which makes the death proceeds of the policy includable in the insured’s estate. |
| income | Opposite principal, this is the return received from property, such as interest, dividends and rents. |
| income cash | Cash earned on investments in a trust account or cash received from other income, such as Social Security or retirement payments. |
| indemnification | An agreement to compensate or reimburse an individual or other legal entity in the event of a loss. |
| indirect gift | A transfer of an asset during life from a donor to a donee in a fashion other than direct; for example, the forgiveness of a loan or adding a person’s name to the title of an asset is an indirect gift |
| inheritance tax | A tax levied on a person by a state on the right to receive property by inheritance; to be distinguished from an estate tax. |
| intangible property | Personal property that cannot be physically distinguished by the senses; property that represents something else; for example, a stock certificate is not the property itself, yet it represents ownership in a company that cannot be physically sensed. |
| in terrorem clause | A provision of a will/trust intended to frighten a possible beneficiary into doing or refraining from doing something with the consequence of forfeiting his/her possible benefits, beneficiary who contested the will; also called a no-contest clause. |
| inter vivos trust | A trust created during the grantor’s life; this type of trust is distinguished from a testamentary trust that is created in one’s will and does not go into effect until after the grantor’s death; also called a living trust or trust under agreement. |
| intestacy/intestate | Dying without leaving a valid will; opposite of testate. |
| investment direction agreement | An agreement among the beneficiaries of a trust, a statement of investment objectives by a principal in an agency relationship, or the trustee of a retirement plan as to the investment direction (choices) for the account. |
| investment management account | An agency relationship that provides investment advice and portfolio management to individuals and institutions for a fee |
| irrevocable life insurance trust (ILIT) | IrrTr funded w/ LIP transferred by the grantor or cash (for the purpose of purchasing life insurance on the life of the grantor); the life insurance death proceeds will not be includable in the estate of the grantor (insured) |
| joint tenancy | Ownership of property by two or more persons, related or not; upon the death of the first owner, by act of law the survivors take possession of the property |
Created by:
mbonnici29