Glossary of Terms

* Administrator
* Annuity Trust
* Annual Valuation Date
* Bequest
* Charitable Gift Annuity
* Charitable Lead Trust
* Charitable Trust
* Charitable Remainderman
* Charitable Remainder Trust (CRT)
* Charitable Remainder Annuity Trust (CRAT)
* Charitable Remainder Unitrust (CRUT)
* Contribution Agreement
* Deferred Charitable Gift Annuity
* Donee
* Donor
* Donor Advised Fund
* Donor Directed Fund
* FlipCrut
* Income
* Income Beneficiary
* Independent Special Trustee
* Income Recipient
* Inter Vivos
* Make-Up Account
* Make-Up Provision
* NiCrut
* NimCrut
* Pooled Income Fund
* Principal
* Recipient
* Settlor
* StanCrut
* Supporting Organization
* Testamentary
* Trust
* Trustor
* Trust Beneficiary
* Trust Document
* Trustee/Special Trustee
* Trust Term
* Unitrust
* Unitrust Amount
* Unitrust Format Options

ADMINISTRATOR:

The person or entity responsible for keeping accurate accounting records of trust income, expenses and assets, process distributions of any kind, and assisting the trustee to comply with state and federal tax laws. The trustee and Administrator may (but need not) be the same person. When the trustee hires an agent to provide these administrative services, the agent is commonly called a third-party Administrator.

ADMINISTRATION AGREEMENT:

The written Agreement between the trustee of a Charitable Remainder Trust (CRT) and a third-party Administrator that defines and limits the scope of the Administrator's duties and responsibilities and how it is compensated.

ANNUITY TRUST:

A charitable remainder annuity trust is a trust from which a certain sum (not less than 5% of the initial fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in IRC 170 and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of twenty years) or for the life or lives of such individual or individuals.

The annuity amount may be stated as a fixed percentage of the initial net fair market value, or a fixed sum. The annuity percentage or amount that is fixed cannot be changed regardless of fluctuations in portfolio value. For this reason, additional contributions to annuity trusts are prohibited.

ANNUAL VALUATION DATE:

The date each year that the trustee must value the trust assets for purposes of determining the annual unitrust amount. For most trusts this date is either December 31, January 1 or 2.

BEQUEST:

The provision at their death by a donor for (in this case) a charity by means of a will or trust agreement, or it may be a distribution from a life insurance policy or retirement account.

CHARITABLE GIFT ANNUITY: Contract between the donor/donors and the issuing charity, where the donor/donors transfer property (cash, securities and real property) in exchange for a fixed dollar payment during their lifetime/lifetimes. Tax deductions for this type of life-income gift vary with the number of recipients and the age of the donor at the time of the gift. The issuing institution guarantees the income, as it becomes a legal obligation of the charity.

CHARITABLE LEAD TRUST:

The opposite of a charitable remainder trust, a gift agreement that provides income to a charity for a term of certain years and the remaining principal either returns to the donor or a designee of the donor. There are four basic variations of this trust that provide different tax consequences and many other specific personal variations. The normal use of such a trust instrument benefits the donor by reducing potential estate taxes.

CHARITABLE TRUST:

One of many trust documents whereby a donor, either during their life or by testament, establishes a gift with its ultimate beneficiary being charity. Family members or other charitable and non-charitable beneficiaries may receive income for a period of years or lives prior to the ultimate distribution.

CHARITABLE REMAINDERMEN:

One or more qualified charitable organizations who will be entitled to receive the assets remaining in the CRT, i.e., the charitable remainder, when the trust reaches its term. The charitable remaindermen must be named expressly in the trust document or pursuant to specific instructions and criteria contained in the trust document. See also qualified charitable organization.

CHARITABLE REMAINDER TRUST (CRT):

The general term used to describe a separate trust arrangement between the donor and the trustee of the donor's choosing, the terms of which must conform to the 1969 Tax Reform Act that established this charitable vehicle. This trust may be either an annuity trust or unitrust (see separate definitions). This trust must have a charitable intent, is irrevocable and receives a partial income tax deduction in the year of the gift. It also produces income from the property transfer; and at the end of the trust, the remaining principal is distributed to the charity (thus the remainder defines what type of charitable trust). This trust allows the donor to choose their trustee, payout rate, term (number of years, life or lives, or combination of the two), investment strategy, frequency of payment and who is the ultimate charitable beneficiary.

CHARITABLE REMAINDER ANNUITY TRUST (CRAT):

Provides a fixed dollar payment of at least 5% of the initial gift (by law). When the trust earns more than the annuity payment, the excess is added to the principal but does not affect the payment ever. If the trust earns less than the payout rate, the principal is invaded to make the payments to the donor.

CHARITABLE REMAINDER UNITRUST (CRUT):

Provides a fluctuating payment based upon a minimum percentage of 5% (by law) of the principal (valued annually) of the trust. There are three variations of this type of trust -- the standard, net income and net income with makeup. (THE) CODE: The Internal Revenue Code of 1986 as amended. This federal legislation is otherwise known as the federal "Tax Code" and deals with federal income, estate, gift and generation-skipping transfer taxes.

CONTRIBUTION AGREEMENT:

The trustmaker's agreement with the Administrator to make additional contributions to the trust to cover any trust expenses that cannot be paid with existing trust assets.

DEFERRED CHARITABLE GIFT ANNUITY:

A charitable gift annuity contract (see definition above) where the income is deferred until a specified time by the contract. A larger tax deduction is realized by this method.

DONEE:

See charitable remainderman.

DONOR:

A person who makes a charitable contribution outright to charity or to a trust for the benefit of charity.

DONOR ADVISED FUND:

A charitable fund that is usually held by an organization, such as a community foundation, where a donor may direct previously donated assets (usually only income) to be donated to and used by certain qualified charities. The donor generally has significant latitude in directing these funds, but the foundation must by law retain the ability to ultimately direct the funds.

DONOR DIRECTED FUND:

A fund that is often held by an organization, such as a community foundation (but not always), where a donor (or designated person) retains the right to direct the funds to charities from certain assets that have been previously donated. Under this arrangement, certain tax implications may be encountered and there is considerable question as to the charitable nature of the gifts. There are a number of such fund variations that are currently under scrutiny by the IRS.

FLIP CHARITABLE REMAINDER UNITRUST (FLIPCRUT):

The flip trust initially establishes a NIMCRUT or NICRUT that received unmarketable assets which produce little or no income. Following the sale of the unmarketable assets, the trust would "flip" to a standard unitrust (SCRUT) and pay income to the income beneficiary based upon the stated pay-out rate. Occasionally, the Flip Trust may use other "triggering events" such as the death or retirement of someone to start the regular income flow.

INCOME:

Generally, the return in money or property derived from the use of principal. Examples include rents, interest, dividends, royalties and receipts from business operations. The definition of income for purposes of all types of split-interest trusts varies slightly from state to state.

INCOME BENEFICIARY:

See income recipient.

INDEPENDENT SPECIAL TRUSTEE:

Special trustee who is totally independent of the trustmaker sometimes required in situations where the trustmaker (or persons who are related or subordinate to the trustmaker) will be serving as the primary trustee. Special trustees of this type are called independent special trustees. Independent special trustees are most often required for a CRT when the primary trustee will be the trustmaker or a party who is related or subordinate to the trustmaker and the trust will be funded with or otherwise invested in hard-to-value assets like real estate, deferred annuities, or stock in a closely-held corporation.

INCOME RECIPIENT:

A person who is entitled to receive unitrust amount payments from a CRT. Income recipients are typically natural persons, but they can also be any non-natural person recognized as a "person" by the Code. A corporation is an example of a non-natural person that could be named an income recipient. A charity can be an income recipient but only if there is at least one other non-charitable income recipient named.

INTER VIVOS:

During a person's lifetime, usually a directive that is made during one's lifetime -- such as an inter vivos trust or living trust.

MAKE-UP ACCOUNT:

The cumulative CRT bookkeeping account is which the trustee credits shortfalls in the trust's ability to make complete distributions of the unitrust amount and debits extra distributions of the unitrust amount and debits extra distributions of distributable income in years when this account has a credit balance and distributable trust income in excess of the annual unitrust amount is available. This account can also be called a deficiency account or an IOU account.

MAKE-UP PROVISION:

This is the unique language that goes into a NIMCRUT document that authorizes the trustee to make-up any prior years' shortfalls in distributions to the income recipients in subsequent years in which the trust earns net distributable income in excess of the annual unitrust amount.

NICRUT:

The acronym commonly used to refer to a Net Income Only Charitable Remainder Unitrust.

NIMCRUT:

The acronym commonly used to refer to a Net Income with Make-up Charitable Remainder Unitrust.

POOLED INCOME FUND:

Was created by the 1969 Tax Reform Act and is a fund maintained by the charity in which all life income gifts are pooled for investment purposes, with income shared proportionally among the participants. Upon death of the income beneficiaries, the principal is distributed to the charity. Payment schedules are stated in the trust document that is issued by the charity, the language of which is prescribed by the IRS.

PRINCIPAL:

The property contributed to the trust, all or part of the income from which is distributable to the income beneficiaries, but the title to which will ultimately pass to the charitable remaindermen. The definition of principal for purposes of all types of split-interest trusts varies slightly from state to state.

RECIPIENT:

See income recipient.

SETTLOR:

See trustmaker.

STANCRUT:

The acronym commonly used to refer to a Standard Charitable Remainder Unitrust.

SUPPORTING ORGANIZATION:

An organization that is based on its close relationship to one or more public charities. It is an entity, either trust or corporation, that is operated exclusively for religious, charitable scientific, testing for public safety, literary or educational purpose, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals, no part of the net earnings of which inure to the benefit of any private shareholder, or individual. No substantial part of the activities can carry on propaganda or influencing of legislation or political contests. It generally takes on one of three forms: parent-subsidiary; brother-sister, or entrepreneurial.

TESTAMENTARY:

At death, usually a directive that is triggered by the death of a donor via a will or trust document.

TRUST:

A fiduciary relationship in which one person is the holder of title to property subject to an obligation to keep or use the property for the benefit of another. A fiduciary is one who holds something in trust for another and is usually called the trustee. The property contributed to a CRT is held by the trustee in trust for the benefit of the income recipients and the charitable remaindermen.

TRUSTOR:

The person who creates and funds a charitable remainder trust; also called a trustor, settler, grantor, donor or trustmaker. These terms are all used interchangeably.

TRUST BENEFICIARY:

The income recipients and the charitable remaindermen of CRT; referred to collectively as the trust beneficiaries.

TRUST DOCUMENT:

The written and legally binding instrument that contains all of the attributes of a qualifying CRT. A CRT will not qualify for favorable federal income tax treatment unless it is defined in a written instrument that carefully conforms with both state and federal law. This instrument may be referred to as a Trust Agreement or Trust Declaration. The former term is typically used where the Trustmakers and the trustees are different people. The latter term is commonly used where the Trustmakers and the trustees are exactly the same people or entities. The trust document is a legal document that should always be prepared (or at least reviewed and approved) by the trustmaker's attorney before it is signed by the trustmaker.

TRUSTEE/SPECIAL TRUSTEE:

The person who holds title to the trust property for the benefit of the income recipients and the charitable remaindermen (also called a fiduciary). Sometimes a trust will have more than one class of trustees, each of whom will have different duties and responsibilities. When different trustee classes are required, the trustee with primary responsibility for trust management and administration is called the primary trustee. All other trustees are called special trustees.

TRUST TERM:

The period of time during which the trustee will hold the trust property for the benefit of the income recipients and the charitable remaindermen. If the trust term is based on individuals' lives, all of the individuals must be alive when the trust is created. Still it is possible that the term of the trust could be cut short by the happening of a qualified contingency, the possibility of which was foreseen by the trustmaker and specifically defined in the trust document.

UNITRUST:

The general term for a charitable remainder unitrust is a trust from which a fixed percentage, which is not less than 5% of the net fair market value of its assets, valued annually, is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in IRC 170 and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of twenty years) or for the life or lives of such individual or individuals. Unlike the charitable remainder annuity trust, additional contributions to unitrusts are permitted.

UNITRUST AMOUNT :

The fixed percentage of the value of the trust assets valued each year on the annual valuation date, that must be paid each year to the income recipients from distributable net income, but only to the extent there is sufficient distributable net income to make a distribution.

UNITRUST FORMAT OPTIONS:

1. Standard Unitrust - STANCRUT A unitrust is required to distribute an amount, at least annually, equal to at least 5% of the annual value of trust assets. In the event income and gain is not sufficient to make the required distribution, the trustee shall distribute corpus. This type of format is commonly referred to as a standard or "Type I" unitrust.

2. Net Income Only Unitrust - NICRUT Notwithstanding the general rule above, the trust instrument may provide that the trust shall pay, for any year, the lesser of the full unitrust amount or trust income (as defined in Section 643(b) and the regulations thereunder). This option is commonly referred to as an income only, net income or "Type II" unitrust. IRC 643(b) assigns to the term income what ever definition is provided in the governing instrument and applicable local (state) law. Income is usually defined to include interest, dividends, rents, royalties and the discount element of original issue discount debt instruments. Unless otherwise defined, and subject to state law, income does not include capital gain or corpus.

Regulations 1.643(b)-1 adds that any trust provisions which depart fundamentally from concepts of local law in the determination of what constitutes income are not recognized for these (federal tax) purposes. Therefore, the draftsman should always conform to local law, which is often contained in the Uniform Principal and Income Act.

3. Net Income with Makeup Unitrust - NIMCRUT If a net income option is adopted, the trust may also be designed to pay income in excess of the full unitrust amount to the extent the aggregate of amounts paid in prior years were (by reason of the income only exception) less than the aggregate of the fixed percentage amounts for such prior years. The trust can, in other words, make-up past deficiencies in prior years by paying out excess income earned in the current year. The concept is somewhat analogous to a cumulative dividend feature on preferred stock and is referred to as a net income with make-up or "Type III" unitrust. Net income and make-up provisions are available to charitable remainder unitrusts only. They are not available to charitable remainder annuity trusts or to charitable income (lead) unitrusts.