| 2503(c) trust for minors | The 2503(c) trust, or minor’s trust is a trust designed to comply with Section 2503(c) of the Internal Revenue Code so that a gift placed in such a trust for the benefit of a minor will qualify for the gift tax annual exclusion. The grantor of the trust cannot receive any income from the assets held in the trust. The annual exclusion only applies to gifts made before the beneficiary turns 21, provided that the beneficiary has no immediate right to withdraw the gift. |
| 401(k) retirement plan | A 401(k) retirement plan is established under IRC Section 401(k) in which an employee is allowed to defer a portion of salary without current income taxation into an employer-sponsored retirement plan. The dividend, interest and capital gains are not taxed until they are disbursed. There is an $18,000 deferral limit amount for 2016-2017, which may be increased in future years. |
| 403(b) plan (tax-sheltered annuity) | A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement or tax-deferred program available only to employees of a public education organization or a 501(c)(3) tax-exempt organization. Employees save for retirement by contributing to individual accounts. Employers are also able to contribute to employees’ accounts. |
| Absolute Assignment | Absolute assignment is when the policy owner imparts all of the rights, liabilities, and benefits of a policy to a third party. The rights may be assignable to anyone, including a business. |
| Accidental Death Insurance | Accidental death insurance is a form of Health insurance which provides payment, in the event that a death results from an accident. Accidental death insurance is often combined with dismemberment insurance in a policy called Accidental Death & Dismemberment (AD&D). |
| Accident and Sickness | Accident and sickness insurance is insurance which protects against bodily injury, disability or death by accident or accidental means, or against disability or expense resulting from sickness. Typically these policies can payout for a maximum period of 12 consecutive months. |
| Accidental Means | Under the Accidental Means definition, if the accident was intentional, meaning the person meant to whatever caused the injury, then there is no coverage. Accidental Bodily Injury is what is offered in most Health insurance policies, which is much broader and covers accidents regardless of the cause. |
| Accumulation at Interest Option | This is a dividend or settlement feature of permanent life insurance which allows a policyholder to leave dividends received with the insurer to accumulate interest. Although the dividends or proceeds are not generally taxable, the interest earned is. |
| Acid test ratio | An acid test ratio is used to determine a business’s ability to meet short-term obligations as they come due. It is a ratio of “quick” current assets to current liabilities. |
| Active participant | An active participant is an individual who is covered by or receives allocations under a qualified retirement plan. When it comes to determining whether an IRA contribution is deductible, the individual does not have to actually participate in the plan to be considered an active participant. They are an active participant simply by being eligible under the definition. |
| Accumulated earnings tax | The accumulated earnings tax is a federal tax that may be imposed upon the undistributed earnings of corporations that are deemed to have accumulated retained earnings in excess of certain limits permitted by federal law. |
| Accidental death benefit | The Accidental Death Benefit, also known as Double or Triple Indemnity, is the payment due to the beneficiary of an accidental death insurance policy. It is often a clause or rider connected to a life insurance policy. It is usually an amount paid to double the face amount of the standard policy if the insured dies as a result of an accident, generally within 90 days of the accident. |
| Adjusted gross income | Adjusted gross income is defined as gross income reduced by adjustments to income, as allowed in the enumerated deductions set forth in the income tax code.It is used by the Internal Revenue Service to determine a taxpayer’s eligibilit for certain tax benefits. |
| Administrator | An administrator is a person appointed by a court to settle a deceased’s estate, sometimes called an executor. |
| Advance medical directive | An advance medical directive is an umbrella term that includes living wills, healthcare powers of attorney, medical directives, and instructions for organ donations. It is used to outline a perons’s wishes and preferences in regard to medical treatments and interventions. |
| Adverse Selection | Adverse selection refers to a selection not in favor of the company. It is the tendency of poorer risks to want insurance more oftehn than standard risks. An example of adverse selection would be when a person who is already sick purchases health insurance. |
| Adverser Underwriting Decisions, Consumer Rights | Under the Fair Credit Reporting Act, when an adverse underwriting decision is made, the insurer or producer responsible must provide the applicant or policyholder with specific written reasons for the decision, or advice the individual that specific reasons are available upon written request. After receiving notice than an adverse underwriting decision has been made, an individual has 90 business days within which to request information in writing. Upon receipt of the written request, the institution or producer must furnish, within 21 business days, specific reasons for the adverse decision and the names and addresses of the sources that provided the information. |
| Alien Company | An alien company is an insurer organized and domiciled in a country other than the United States. |
| Alternative valuation date | An alternative valuation date is a date other than the date of death (generally six months after death) that an executor may elect as the valuation date for the estate’s assets. The executor of an estate is responsible to take care of the financial matters othe deceased which includes filing of the final income tax return and the estate tax return. The executor has the option of using the date of death to value the estate’s assets, or the alternative valuation date. |
| Alternative minimum tax (AMT) | The alternative minimum tax, commonly referred to as the AMT, is a federal tax on tax preference items that may be imposed on individual taxpayers and corporations when the tax is greater than the regularly calculated federal income tax. |
| Annuitant | An annuitant is the party collecting the benefits of an annuity or pension. It is similar to the insured on an insurance policy. The annuitant typically owns the annuity, although there is an option for an annuitant to buy an annuity to benefit another party. |
| Annual exclusion, gift tax | The annual exclusion, gift tax is a provision of the federal gift tax law that exempts up to $14,000 per year (for 2016) per donee from the gift tax, provided the gift is of a present interest in property. |
| Annuity interest | An annuity interest is an income from property for life or a specified period of years. |
| Applicable credit amount | The applicable credit amount is another term for the federal gift tax and estate tax unified credit. It applies to both the gift tax and estate tax. It is equal to the tax on the applicable exlusion amount. The applicable credit must be subtracted from the gift or estate tax that is owed. |
| Applicable exclusion amount | The applicable exclusion amount is another term for the federal gift and estate tax “exemption equivalent.” The exclusion refers to the amount of transfers sheltered from tax by the unified credit in any given year. |
| Arm’s-length transaction | The arm’s length transaction is typically a financial transaction where the buying and selling parties are on equal grounds and are independent of each other. The arm’s length transaction is a concept which closely relates to the fair market value in the sense that fair market value would not be arrived at without an arm’s length transaction. Meaning both parties in the transaction are acting on their own self interest and are not under duress from another party. |
| Articles of incorporation | Articles of incorporation is a document filed with a state by a corporation’s founders, to incorporate a business under the laws of that state. The articles of incorporation describes the purpose, place of business and includes other details of a corporation. This document is also referred to as the charter. |
| Balance sheet | A balance sheet, also called a statement of condition, is a financial statement that reflects the financial condition of a business on a given date in terms of assets, liabilities and owner’s’ equity. The first portion of the balance sheet exhibits the productive assets that a company owns, the scond portion illustrates the financing methods, (liabilities and owner’s equity). |
| Basis | Basis is the acquisition cost of an asset; usually the purchase price of the asset or the basis that carries over by transfer. Basis may be affected by certain conditions (i.e. reduced by any depreciation taken against the asset). The basis for a purchased investment is the amount paid. The basis for an inheritance is the value of the stock on the date of the original owner’s death. The basis for a gift is the amount that was originally paid for the investment by the giver, unless the market value of the investment was lower on the date the gift was given. |
| Bequest | The bequest is the assets to be transferred to an heir made through the will. |
| Blockage discount | The blockage discount is a discount which is negotiated by the involved investors, which factors market liquidity and the size of the trade. It may apply to the value of stock to reflect that a large block of stock on the market at one time will tend to depress the price. |
| Business overhead expense protection with disability income insurance | Business overhead expense protection with disability income insurance is a type of disability insurance coverage that provides business owners protection for specified overhead expenses of a business up to a stated monthly maximum when the insured business owner suffers a disability. |
| Business valuation | Business valuation is the process and set of procedures used to estimate the value of a business. |
| Buy-sell agreement | A buy-sell agreement, or buyout agreement, is a legal arrangement which provides for the disposition of a business owner’s share of the business at the time of a co-owner’s death or disability. The agreement may provide that the remaining owners will purchase a deceased or disabled owner’s interest at an agreed-upon price and that the deceased owner’s estate, or the disabled owner, will be obligated to sell the interest to the remaining co-owners at that price. |
| Bypass trust | A bypass trust is an irrevocable trust (also called a credit shelter trust, family trust, or “B” trust in “AB” plane where the A trust funds for the marital deduction) designed to minimize the combined estate taxes payable by spouses. At the death of the first spouse, the estate is divided into two parts and one part is placed in trust usually to benefit the surviving spouse without being taxed at the surviving spouse’s death. The second portion will then pass directly to the surviving spouse or is placed in a marital deduction trust. This estate planning device is used to pay trust income and principal if needed to the living spouse for the duration of the spouse’s lifetime. |
| C corporation | A C corporation is an incorporated business that elects to be taxed under Subchapter C of the Internal Revenue Code; also called a regular or ordinary corporation. The C corporation pays federal and state income taxes on earnings and is also subject to a second round of taxation, called shareholders income, when earnings are distributed to shareholders as dividends. |
| Cafeteria plan (Section 125 plan, flexible benefits plan) | A cafeteria plan is a benefits plan that, when established to meet the Code Section 125 requirements, allows employees to freely choose from a “compensation menu” that includes both taxable and nontaxable benefits like medical expenses, life insurance premiums and more, without rendering the nontaxable items subject to income taxation. |
| Capital gain | Capital gain is the profit from of a sale, exchange, or other disposition, made by the difference between the net sales price of the securities and their net cost, or original basis. |
| Capital replacement | Capital replacement, or wealth replacement is a method of employing life insurance in combination with a charitable remainder trust and an irrevocable life insurance trust so that a donor can make a gift to charity while potentially maintaining the value of property which will pass to his or her heirs. |
| Cash-balance pension plan | A cash balance-pension plan is a type of hybrid defined benefit retirement plan in which participants are credited by their employer with a percentage of their yearly pay. A cash balance pension plan is a defined benefit plan which means that the company bears ownership of profits and losses in the portfolio. The plan’s funding limits, funding requirements, and investment risk are based on defined-benefit requirements, which means changes in the portoflio do not affect the final benefits to be received by the participant upon retirement or termination. Normal forms of benefit are a joint and survivor annuity for named participants and a single life annuity for non-named participant’s; cash-balance plans also generally permit lump-sum payments. |
| Catch-up contributions | Catch-up contributions are contibutions allowed for participants age 50 and over, who desire to contribute over the traditional limits of an an IRA or 401(k) plan. |
| Charitable deduction | A charitable deduction is a deduction available to taxpayers who make charitable contributions of money or property to qualified organizations. |
| Charitable gift annuity | A charitable gift annuity is an arrangement whereby the donor makes a gift to a charitable organization in exchange for the charity’s promise to make guaranteed lifetime or joint lifetime income based annuity payments based on the age(s) of the annuitant(s). |
| Charitable lead trust | The charitable lead trust is type of trust is designed to reduce the beneficiaries’ estate taxes by donating to charities from the estate until all taxes are reduced. Once the taxes ahve been recued, the remainder is paid to the noncharitable beneficiaries (generally either the donor or the donor’s heirs). |
| Charitable remainder annuity trust | A charitable remainder annuity trust is a planned giving arrangement which entails a donor placing a major gift of cash or property into a trust. The donor or other beneficiary is then paid annually an income of a fixed amount of at least 5% but not more than 50% of the initial fair market value of property placed in the trust, for life or for a period of up to 20 years; one or more qualified charitable organizations must be named to receive the remainder interest upon the death of the donor or other income beneficiaries, and the value of the charitable remainder interest must be at least 10% of the net fair market value of all property transferred to the trust, as determined at the time of the transfer. |
| Charitable remainder unitrust | A charitable remainder unitrust is a charitable trust arrangement whereby the donor or other beneficiary is paid annually an income of a fixed percentage of at least 5% but not more than 50% of the annually revalued trust assets, for life or for a period of up to 20 years; one or more qualified charitable organizations must be named to receive the remainder interest upon the death of the donor or other income beneficiaries, and the value of the charitable remainder interest must be at least 10% of the net fair market value of all property transferred to the trust, as determined at the time of the transfer. |
| Charitable remainder trust | Generally, a charitable remainder trust is an arrangement in which property or money is placed into a trust for a specified distribution, at least annually, to one or more beneficiaries, at least one of which is not a charity, for life or for a term of years, with an irrevocable remainder interest to be held for the benefit of, or paid over to, charity. |
| Closely held corporation | A closely held corporation, also referred to as a closed corporation, is a corporation for which most of the voting stock is owned and usually controlled by one or a few shareholders; stock is not usually traded on a publicly on a regular basis. |
| Codicil | A codicil is a legal document which supplements, adds to, or changes an existing will, generally restricted to minor changes to the original will. |
| Collateral assignment method (split dollar) | A collateral assignment method, or split-dollar arrangement is a method of purchasing life insurance in which the premium payments, policy benefits, or both are divided in a predetermined way, where the employee (or a third party) owns the policy and names a personal beneficiary but assigns it to the employer as collateral for the employer’s premium advances under the policy. |
| Community property | Community property is property that a married couple has acquired during marriage. Each spouse is deemed by law to own 50%. Nine states recognize community property- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Married couples may enter into an agreement that treats property as community property in Alaska, and Tennessee. |
| Constructive dividend | A constructive dividend is a distribution by a corporation which, though not in the form of a dividend, is deemed to be a disguised distribution of earnings and profits to the shareholder. Constructive dividends are commonly found in companies where the employees are also the shareholders. |
| Constructive receipt doctrine | The constructive receipt doctrine is a federal tax rule mandating that a taxpayer is liable when they have an unrestricted right to receive a pecuniary benefit, for income tax purposes, that benefit is considered to have been received whether or not it was actually received. |
| Corporation | A corporation is a common form of business organization, which is chartered by a state and given legal rights as an entity separate from its owners. |
| Coverdell Education Savings Account (formerly, Education IRA) | The Coverdell Education Savings Account is a type of trust or custodial account designed to help parents fund their child’s education. Contributions are not tax-deductible but earnings can grow federal income tax-free if distributions are used for certain elementary, secondary, or postsecondary educational expenses. |
| Cross-purchase buy-sell agreement | The cross-purchase buy-sell agreement is an arrangement whereby each of the owners agree to purchase a deceased or disable owner’s business interest if a partner/owner suffers a death or disability, or goes into retirement. The buyout may be funded by life insurance or disability insurance on the owners where each owner buys a policy on every other owner. The agreement outlnes the terms of the sale and establishes a formula for determining the actual sales price of the stock based on the company’s valuation. |
| Crummey power | The Crummey power is a provision contained in certain irrevocable trusts which gives power to a trust beneficiary to withdraw distributions from the trust of amounts contributed to the trust, limited to amount and duration of the exercise period. |
| Cumulative tax | A cumulative tax is one in which prior transactions such as taxable gifts, raise the tax bracket for later transactions. |
| Current assets | The current assets are a balance sheet item that determines the sum of liquid assets like cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses and other assets which could be easily converted to cash in less than one year. |
| Current liabilities | The current liabilities are a balance sheet item which determines the sum of debts that a business will be responsible for paying within a year. Current liabilities is also called payables, or current debt. |
| Current ratio | Current ratio is the ratio of current assets to current liabilities; used as an indicator of a business’s ability to pay current obligations. |
| Custodianship | Custodianship generally means an ownership arrangement in which property management rights are given to a custodian for the benefit of a child beneficiary under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act; a custodian’s duties resemble those of a trustee, although the custodian does not take legal title to the trust property and custodianship ends when the minor reaches the age of majority as specified by state law. |
| Death benefit only arrangement | The death benefit only arrangement is a type of deferred compensation arrangement in which an employer agrees to pay only a death benefit to a deceased employee’s heirs rather than the customary retirement benefit (and possibly ancillary benefits) associated with conventional deferred compensation. |
| Deceased spousal unused exclusion amount | The deceased spousal unused exclusion amount is any applicable exclusion amount that remains unused as of the death of a spouse who dies after 2010. It is generally available for use by the surviving spouse as an addition to the surviving spouse’s own applicable exclusion amount. Also defined as the portability of unused exemption between spouses. |
| Deferred compensation arrangement | A deferred compensation arrangement is a non qualified incentive arrangement established by employers to provide retirement income and perhaps death and disability benefits to selected key-executive employees. |
| Deferred gift annuity | A deferred gift annuity is an arrangement whereby the starting date of income payments from a charitable gift annuity may be deferred for at least one year, thereby increasing both the annuity amount and the charitable deduction. |
| Defined benefit pension plan | A defined benefit pension plan is a qualified retirement plan which promises either a stated benefit at retirement or provides a benefit which is determined according to a fixed formula. |
| Defined contribution plan | A defined contribution plan is a qualified retirement plan which provides for the employer and/or employee to make annual contributions to the plan; the amount of each employee’s retirement benefit ultimately depends on the investment performance of that particular employee’s account rather than the employer’s promise to pay a stated benefit as in a defined benefit plan. |
| Digital assets | Digital assets refers to assets that are in the digital format, including digital currency and online accounts that are stored electronically and which the owner has the right to use. |
| Direct Skip | A direct skip is an event which triggers the generation-skipping transfer tax when a grantor bypasses his or her children completely and gives assets either outright or in trust for the benefit of grandchildren, more remote descendants, or other “skip” person(s) |
| Director rollover | A director rollover is a method of transferring funds directly from one IRA to another, or from one qualified retirement plan to another or to an IRA, which avoids the withholding tax on rollovers that pass through the hands of the participant or IRA owner |
| Disability buy-out agreement | A disability buy-out agreement is a buy-sell agreement in which the business or the other owners agree to purchase the business interest of an owner who becomes disabled |
| Dower curtesy interests | The Dower and curtesy interests were, under common law, the rights of a wife and a husband, respectively, in the property of the other spouse. Most states have adopted statutory substitutes for the old common law interests, and have made the rights of spouses identical. |
| Durable power of attorney | A durable power of attorney is a legal document which allows one person (the principal) to authorize another person (the attorney-in-fact or agent) to act on his or her behalf with respect to specified types of property, and which may remain in effect during a subsequent disability or incompetency of the principal |
| Durable power of attorney for health care (health care proxy) | A durable power of attorney for health care is a legal document which grants decision-making powers related to health care to an agent; generally provides for removal of a physician, the right to have the incompetent patient discharged against medical advice, the right to medical records, and the right to have the patient moved or to engage other treatment |
| Dynasty trust | A dynasty trust is a multi-generational trust established in a state that has revised or repealed the rule against perpetuities. When properly established and administered, a dynasty trust can conserve family wealth through successive generations by minimizing the effect of federal transfer taxes. |
| Economic benefit doctrine | The economic benefit doctrine is a federal tax rule holding that when an employer provides an economic benefit to an employee, that benefit is includable in the employee’s gross income even if not received in cash or property. |
| Education IRA (“Coverdell Education Savings Account”) | An education IRA is a trust or custodial account in which contributions are not tax-deductible but earnings can grow federal income tax-free if distributions are used for certain elementary, secondary, or postsecondary education expenses. |
| Employer pay-all or noncontributory plan (split dollar) | An employer-pay-all or noncontributory plan (split dollar) is a split-dollar arrangement where the employer advances the entire premium for life insurance on the employee’s life. |
| Endorsement method (split dollar) | The endorsement method (split dollar) is a life insurance policy ownership arrangement under a split-dollar arrangement in which the employer owns the policy and an endorsement to the policy spells out the employee’s rights. |
| Entity attribution rules | The entity attribution rules are federal tax rules that may cause the ownership of stock by an entity such as a trust, estate or business to be attributed to an individual for purposes of determining the income tax consequences of a distribution by the corporation in redemption of stock. |
| Entity or stock redemption agreement | An entity or stock redemption agreement is one which the business entity rather than the individual owners carriers out the buyout. |
| Entity-purchase buy-sell agreement. | An entity-purchase buy-sell agreement is an arrangement whereby the business entity (corporation, LLC, or partnership) agrees to purchase a deceased or disabled owner’s business interest; usually funded by business-owned life insurance |
| Equity split-dollar | An equity split-dollar is an arrangement in which the employer’s share of the cash value and death benefit of life insurance on an employee’s life is confined to its aggregate net premium payments; any cash value in excess of the employer’s premiums inures to the benefit of the other party (employee or third party); an equity arrangement has important tax consequences under IRS regulations. |
| ERISA | ERISA is the acronym for the Employee Retirement Income Security Act of 1974, a federal law that established minimum standards for certain employee benefit plans, especially qualified employer retirement plans. |
| Estate tax marital deduction | The estate tax marital deduction is a federal estate tax deduction for all property passing between spouses at death, where the recipient-spouse is a U.S. citizen, provided such transfers are not of a terminable interest. |
| Estate trust | An estate trust is a special kind of trust qualifying for the estate tax marital deduction which allows trust income to be accumulated rather than paid out annually to the surviving spouse, but upon such spouse’s death, principal and accumulated interest are payable to the spouse’s estate. |
| Executive bonus (Section 162) arrangement | An executive bonus (Section 162) arrangement is an arrangement whereby the employer pays a bonus each year to selected employees for the purchase of personally owned life insurance or other products, either in cash or through direct premium payments. |
| Executor | An executor is the person nominated by an individual to carry out the terms of his or her will, and appointed to do so by the probate court or by various state statutes. |
| Fair market value (FMV) | The fair market value is the price at which a willing buyer would buy, and a willing seller would sell, neither being under any compulsion and both having complete knowledge of the pertinent facts. The concept is related to the concept of arm’s-length transaction. |
| Family attribution rules | The family attribution rules are federal tax rules that may cause the ownership of stock by one family member to be attributed to another for purposes of determining the income tax consequences of a distribution by the corporation in redemption of stock. |
| Family limited liability company (FLLC) | A family limited liability company (FLLC) is a limited liability company (LLC) used in the family setting to achieve goals related to the transfer of family wealth in a tax-minimizing way to younger generations, business succession planning, and/or personal income tax planning. |
| Family limited partnership (FLP) | A family limited partnership (FLP) a limited partnership used in the family setting to achieve goals related to the transfer of family wealth in a tax-minimizing way to younger generations, business succession planning, and/or personal income tax planning. |
| Federal estate tax | The federal estate tax is a tax imposed by the U.S. government on the transfer of property at death. |
| Federal gift tax | The federal gift tax is a tax imposed by the federal government on gratuitous transfers of property during the life of the donor. |
| Five-and-five power | The five-and-five power is a right given to a trust beneficiary to withdraw annually up to $5,000 or 5% of the trust corpus, whichever is greater. |
| Fixed assets | Fixed assets are the real property, plant and equipment of a business. |
| Funded deferred compensation agreement | The funded deferred compensation agreement is a deferred compensation arrangement under which the employer sets aside specific assets to meet its future obligations with the employee as beneficiary. |
| Funded irrevocable life insurance trust | A funded irrevocable life insurance trust is an irrevocable life insurance trust which holds not only the life insurance policy, but also other property from which the premium payments may be made without annual cash transfers to the trust. |
| Future interest | A future interest is an ownership interest in property in which unlimited possession or enjoyment of property is delayed until some future time. |
| Gain on sale of capital assets | The gain on sale of capital assets is the appreciation in the value of a capital asset (i.e., the difference between sales proceeds and cost basis) that is realized as a capital gain when the asset is sold or exchanged. |
| General partner | A general partner is a partner who is jointly and severally liable for debts incurred by the partnership, and who may legally bind the partnership; subject to unlimited liability for partnership obligations. |
| General power of appointment | The general power of appointment is the right of an individual over property often held in trust where the individual could have required the distribution of such property to the individual or the individual’s estate, creditors, or estate’s creditors. |
| Generation-skipping transfer tax | The generation-skipping transfer tax is a a tax enacted by Congress to eliminate the ability of estate owners to avoid estate taxes by skipping a generation of heirs. |
| Gift | A gift is a transfer of property which is: 1) gratuitous, 2) complete, and 3) voluntary. |
| Gift splitting | Gift splitting is a gift tax-saving technique available to a married couple whereby one spouse makes a gift to a third party and the other spouse elects to join the gift for tax purposes, thereby doubling the annual exclusion and/or applicable credit amounts. |
| Gift tax annual exclusion | A gift tax annual exclusion is a provision of the federal gift tax law that exempts up to $14,000 per year (for 2016) per donee from the gift tax, provided the gift is of a present interest in property. |
| Gift annual exclusion (non-US citizen spouse) | The gift-annual exclusion (non-US citizen spouse) is a provision in the federal gift tax law that exempts up to $148,000 per year (for 2016) for gifts to a noncitizen spouse of gifts of a present interest in property. |
| Gift tax marital deduction | A gift tax marital deduction is a deduction that applies to gifts between spouses to eliminate any gift tax on such transfers, provided the donee-spouse is a U.S. citizen and the gifts are not of a terminable interest. |
| GRAT (grantor retained annuity trust) | A GRAT (grantor retained annuity trust) is a trust that pays the grantor a fixed payment annually; the value of the grantor’s retained interest can be taken into account in reducing the value of the gift to the remaindermen, if the GRAT requirements are met. |
| GRUT (grantor retained unitrust) | A GRUT (grantor retained unitrust) is a trust that pays the grantor a fixed percentage of the trust assets as revalued annually; the value of the grantor’s retained interest can be taken into account in reducing the value of the gift to the remaindermen, if the GRUT requirements are met. |
| Gross estate | A gross estate generally includes the value of all property which the decedent owned, had an interest in, or controlled at the time of death; includes property that avoids probate such as joint tenancy property with rights of survivorship and life insurance proceeds paid to a named beneficiary. |
| Group carve-out program | A group carve-out program is when an employer may carve out one or more employees from a group-term life insurance program, and provide them with supplemental or alternative coverage under individual life insurance policies. |
| Group-term life insurance program | A group-term life insurance program is when an employer may provide employees with life insurance coverage through an IRC Section 79 group-term policy, the first $50,000 of which generally produces no taxable cost to the employee. |
| Incidents of ownership | Incidents of ownership includes a variety of rights and powers that an insured decedent may have held over a life insurance policy; the possession of one or more of these incidents of ownership within three years of death will bring the policy proceeds into the insured’s gross estate. |
| Income in respect of a decedent’s (IRA) | Income in respect of a decedent’s (IRD) is income earned by a decedent or income to which the decedent had a right prior to death, but which was not properly includible in his or her gross income prior to death. |
| Income statement | An income statement is a financial statement that shows a business’s operating results for a period of time; also called a profit and loss statement. |
| Individual retirement account/annuity (IRA) | Individual retirement account/annuity (IRA) is an individual plan which allows workers and their spouses to save for retirement on a tax-deferred basis; contributions to traditional IRAs are deductible for some IRA . |
| Intentionally defective grantor trust (IDGT) | An intentionally defective grantor trust (IDGT) is a type of irrevocable trust for which the grantor keeps a certain power over trust assets which causes trust income to be taxed to the grantor rather than the trust itself, but the assets remain outside of the grantor’s estate for federal estate tax purposes. |
| Intestacy | Intestacy is when a person dies without a valid will that person is said to have died intestate and that person’s property will be distributed under state succession statutes, generally of the state in which that person was domiciled at death. |
| Irrevocable life insurance trust | An irrevocable life insurance trust is a trust which holds a life insurance policy and in which the grantor completely gives up all rights in the property transferred to the trust and retains no rights to revoke, terminate, or modify the trust in any material way; beneficiaries usually hold Crummey powers that give them withdrawal rights over trust corpus. |
| Joint tenancy with rights of survivorship | Joint tenancy with rights of survivorship is an arrangement whereby two or more persons own property jointly, all owners hold an equal interest in the property, and surviving co-owners succeed to the interest of a deceased co-owner. |
| Keogh plan (HR-10 plan) | A keogh plan (HR-10) plan is a qualified retirement plan maintained by a self-employed person (sole proprietor or partner). |
| Key employee life insurance | Key employee life insurance is insurance on the life of a key employee purchased to help protect an employer from economic loss caused by the death of the employee. |
| Kiddie tax | A kiddie tax is a nickname of the tax on the unearned income of (a) all children under age 18; (b) children age 18 who provide less than half of his or her support with earned income; and (c) children age 19 to 23 who are students and provide less than half of their support with earned income. Generally, such income is taxed at the parent’s marginal tax bracket, not the child’s, once a small exempted amount has been exceeded. |
| Life estate | A life estate is the enjoyment of property or the income from property for as long as one lives. |
| Limitation year | Limitation year is used in determining limits on contributions and benefits associated with a qualified retirement plan, a term of 12 consecutive months (usually a calendar year unless stated otherwise in the plan document). |
| Limited liability company (LLC) | Limited liability company (LLC) is a form of business entity permitted by all states and the District of Columbia that is generally intended to provide the liability protection afforded to shareholders in a corporation, combined with the advantages of partnership taxation. |
| Limited partnership | A limited partnership is a partnership with one or more general partners and one or more limited partners. |
| Living will | A living will is a document which allows people to specify in advance of an illness or injury medical treatments to be administered or withheld. |
| Long-term capital gain | Long-term capital gain is gain on the sale of a capital asset held for more than 12 months (for most types of capital assets). |
| Long-term care insurance | Long-term care insurance is insurance which generally covers nursing home costs, home health care costs, and custodial care required due to a chronic illness or condition. |
| Lump-sum distribution | A lump-sum distribution is a benefit payment arrangement under a qualified retirement plan wherein the participant receives the full plan benefit within one taxable year generally after death, disability, attainment of age 59 1/2, or separation from service; eligible for favored tax treatment for certain grandfathered recipients. |
| Majority | Majority is the age at which a person is considered an emancipated adult and legally responsible for his or her actions, usually the age at which he or she is permitted to vote. |
| Marital deduction | Marital deduction is a tax deduction which shelters from federal gift and estate tax most property transferred from one spouse to another, provided the spouse receiving the property is a U.S. citizen. |
| Marketability discount, lack of | The marketability discount, lack of is a discount to the value of an interest in a closely held business because of the limited market for a sale of the interest. |
| Medicaid | Medicaid is a government medical assistance program for individuals and families who qualify for benefits because their incomes and assets fall below defined limits. |
| Medical directive | Medical directive is a document which sets forth an individual’s wishes with regard to the termination of life support under various circumstances. |
| Medicare | Medicare is the government’s medical insurance program for persons 65 and older. |
| Minimum required distribution (MRD) | Minimum required distribution (MRD) is a minimum annual amount that must be taken from an IRA or qualified plan after age 70½ (or actual retirement in the case of certain qualified plan participants); also known as required minimum distribution (RMD). |
| Minority interest discount | The minority interest discount is a discount to the value of a minority owner’s interest in a closely held business because of its limited appeal to an outside purchaser. |
| Money purchase pension plan | A money purchase pension plan is a defined contribution qualified retirement plan where employer contributions are based on a percentage of each employee’s salary; the employer is required to make annual contributions to the plan. |
| P.S. 58 rates | P.S. 58 rates are rates provided by the government to compute the taxable economic benefit to the employee in a split-dollar arrangement, or for life insurance which is part of a qualified retirement plan; use after 12-31-2001 is limited. |
| Partial Interest | Partial interest refers to interests in property where the beneficial ownership of property is split between two or more persons. Examples include life estates, remainder interests, reversionary interests, and annuity interests. |
| Partnership | A partnership is an association of two or more persons to carry on a business as co-owners for profit, usually under a formal, written partnership agreement. |
| Personal holding company | A personal holding company is a corporation in which more than half of its stock is owned by five or less individuals, and where at least 60 percent of its adjusted ordinary gross income comes from investments and certain personal service contracts. |
| Pension income supplemental life insurance | Pension income supplemental life insurance is an alternative to company-sponsored retirement-plan payout options, utilizing a life-income option annuity election from an employer’s retirement plan in combination with a separate life insurance policy on the retiring worker’s life. |
| Pooled income fund | A pooled income fund is a trust arrangement which accepts gifts of cash or certain properties from persons who want to provide support for the charitable organization; gifts made to the fund are commingled and invested by the trustee and units of participation are awarded to the donor for his or her gift; income is then paid to the donor proportionate to his or her share of fund earnings. |
| Pour Over provision | A pour over provision is a provision in a will which directs that the remainder of the probate estate, after payment of taxes and costs, pass to a trust, usually one which had been established prior to death. |
| Power of appointment | The power of appointment is a device to exercise control over property that one does not own. |
| Present interest | Present interest is the right of a gift recipient to have immediate possession or enjoyment of the gifted property. |
| Probate | Probate is the judicial determination of the validity of a will and the distribution of estate assets under a valid will. |
| Probate estate | Probate estate consists of all the assets owned by the decedent that pass through the court-supervised probate process and are ultimately distributed under the terms of the decedent’s will or state intestacy laws if there was no valid will. |
| Profit and loss statement | The profit and loss statement is a financial statement that shows a business’s operating results for a period of time; also called an income statement. |
| Profit-sharing plan | A profit-sharing plan is a defined contribution qualified retirement plan under which the amount of an employee’s retirement benefit depends on the amount in his or her account at retirement; the distinguishing factor from other defined contribution plans is that the employer is not obligated to make contributions each year, but contributions must be substantial and recurring. |
| Sole Proprietorship | A sole proprietorship is an unincorporated business that is owned and usually managed by one person. |
| Prudent man rule | Prudent man rule is an ERISA rule that requires fiduciaries to act with the care, skill, prudence and diligence that a prudent man would exercise in similar circumstances. |
| Publicly held corporation | A publicly held corporation is a corporation whose shares are traded on an established stock exchange or market. |
| Qualified (public) charity | A qualified (public) charity is a charitable organization with a broad base of public support and organized for certain charitable purposes; qualified charities, sometimes called public charities, enjoy the most attractive rules for the deductibility of donor contributions. |
| Qualified domestic trust | A qualified domestic trust is a trust arrangement which allows property transferred to a surviving spouse who is not a U.S. citizen to qualify for a special exclusion in lieu of the regular marital deduction; and which ensures that, at the death of the surviving spouse who is not a United States citizen, the assets placed in such a trust will incur federal estate taxation since the tax was avoided at the first spouse’s death. |
| Qualified retirement plans | A qualified retirement plan are retirement programs which qualify for favorable tax treatment when plan qualification requirements specified by the IRS are met. |
| Qualified terminable interest property (QTIP) | A terminable interest property is property in a decedent’s estate that, even though the surviving spouse’s interest is subject to certain restrictions, can still qualify for the estate tax marital deduction (also includes property given to a spouse during life that qualifies for the gift tax marital deduction). |
| Rabbi trust | A rabbi trust is a trust arrangement in which deferred compensation plan assets are placed in an irrevocable trust out of the reach of the employer or any of the employer’s successors, but are still subject to attachment by the general creditors of the employer. |
| Remainder interest | A remainder interest is a future interest, one which is delayed until some future time, often when another’s life estate terminates. |
| Remainder interest in personal residence or farm (gift of) | A remainder interest in personal residence or farm is an arrangement whereby a donor gives a remainder interest in a personal residence or farm to charity, but reserves the right to live there for life (or for joint lifetimes). |
| Required minimum distribution (RMD) | A required minimum distribution is a minimum annual amount that must be taken from an IRA or qualified plan after age 70½ (or actual retirement in the case of certain qualified plan participants); also sometimes referred to as “minimum required distribution” (MRD). |
| Restricted bonus arrangement | A restricted bonus arrangement is a type of executive bonus arrangement in which the policy on the employee’s life has a special endorsement that prohibits the employee from surrendering the policy or borrowing against it without the employer’s consent. |
| Retained earnings | Retained earnings are a business’s accumulated net income after taxes from prior years, less any dividends distributed. |
| Retained powers or interests | The retained powers or interests is the right to income from property, to possess the property, or to control the enjoyment of the property given to another. |
| Reversionary interest | A reversionary interest is an expectancy or receiving property back that one has given away, usually by outliving the recipient. |
| Revocable living trust | A revocable living trust is a trust created during the grantor’s lifetime that the grantor may alter, amend, or revoke; the trust may become irrevocable or terminate at the grantor’s death. |
| Rollover | Rollover refers to a method of delaying payment of taxes on certain distributions from a qualified retirement plan accomplished by transferring all or part of the distribution to an IRA or to another qualified retirement. |
| Roth IRA | A Roth IRA is a type of retirement savings account in which contributions are not tax-deductible but earnings grow federal income tax-free and distributions are also federal income tax-free if certain requirements are met upon distribution. |
| S corporation | An S corporation is a business that is taxed under Subchapter S of the Internal Revenue Code; enables the shareholders to be taxed similarly to partners in a partnership. |
| Salary continuation (deferred compensation) plan | A salary continuation (deferred compensation) plan is a type of nonqualified deferred compensation in which the benefits are paid by the employer in addition to the employee’s other compensation; the employee does not take a salary reduction or forego a salary increase to provide the deferred benefits. |
| Salary continuation (sick pay) plan | A salary continuation (sick pay) plan is a formal plan established by an employer to pay disability benefits to disabled employees. |
| Salary reduction simplified employee pension plan (SARSEP) | A salary reduction simplified employee pension plan is when employers with 25 or fewer eligible employees were permitted establish a SARSEP up through 12/31/96, under which each eligible employee may elect to have deferred salary contributions made to the plan; SARSEP contributions are not currently taxed to the employee; new SARSEPs may not be established after 12/31/96 but contributions may continue to be made to grandfathered plans. |
| Section 125 plan (cafeteria plan, flexible benefits program) | A section 125 plan (cafeteria plan, flexible benefits program) is a benefits plan that, when established to meet the IRC Section 125 requirements, allows employees to freely choose from a menu of benefits that can be purchased with pre-tax dollars, typically including health insurance, group-term life insurance and “voluntary” supplemental insurance (dental, vision, cancer, hospital confinement, accident, etc.) |
| Section 162 arrangement (executive bonus arrangement) | A Section 162 arrangement (executive bonus arrangement) is an arrangement whereby the employer pays a bonus each year to selected employees for the purchase of personally owned life insurance or other product,s either in cash or through direct premium payments. |
| Section 303 redemption | When certain requirements are met, the Section 303 redemption of the Internal Revenue Code allows a shareholder’s estate or heirs to sell to the deceased’s closely held corporation enough stock to pay federal and state death taxes, costs of estate administration, and funeral expenses without the corporation’s distribution being treated as a dividend for tax purposes. |
| Section 401(k) plan | A Section 401(k) plan is a qualified retirement plan established under IRC Section 401(k) in which an employee is allowed to defer a portion of salary without current income taxation into an employer-sponsored retirement plan. |
| Section 403(b) plan | A Section 403(b) plan is a tax-favored retirement program available only to employees of a public education organization or a 501(c)(3) tax-exempt organization. |
| Section 412(e)(3) | A Section 412(e)(3) – fully insured plan is a type of defined benefit pension plan that is fully insured, i.e., funded entirely by a combination of individual life insurance and annuity contracts, or solely with annuity contracts, issued by an insurance company; benefits are backed by the claims-paying ability of the issuing insurer. |
| Section 457 plan | A Section 457 plan is a plan which provides an exclusion from gross income for a certain portion of salary deferred by a participant under the plan of a state or local government, a tax-exempt organization (excluding churches), or of an independent contractor of such government or organization (e.g., a physician providing independent services to a hospital). |
| Section 1035 exchange | A Section 1035 exchange provides that no gain or loss shall be recognized on the exchange of:(1) a life insurance policy for another life insurance policy, or an endowment or annuity contract, or a qualified long-term care insurance policy; or (2) An endowment policy for (A) another endowment policy which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) an annuity contract, or (C) A qualified long-term care insurance contract; or 3) An annuity contract for another annuity contract or a qualified long-term care insurance policy; or (4) A qualified long-term care insurance policy for another qualified long-term care insurance policy. |
| Section 2503(c) trust for minor | A Section 2503(c) trust for minor is a trust designed to comply with Section 2503(c) of the Internal Revenue Code so that a gift placed in such a trust for the benefit of a minor will qualify for the gift tax annual exclusion. |
| Section 6166 | Section 6166 is a section of the Internal Revenue Code that allows for a 14-year spread out of the federal estate tax for estates that qualify (generally estates that include closely held businesses or farms). |
| Secular trust | A secular trust is a trust arrangement in which deferred compensation plan assets are placed in trust to provide employees with a great level of security, but without tax deferral of contributions to the plan; in some cases, double taxation can occur where employees are taxed on current contributions and the employer is denied a current tax deduction. |
| Short-term capital gain | A short-term capital gain is gain on the sale of a capital asset held for one year or less. |
| SIMPLE retirement plan | A SIMPLE retirement plan is a type of tax-favored employer retirement plan funded by a combination of employee salary deferrals and matching employer contributions; may take the form of a SIMPLE IRA or SIMPLE 401(k). |
| Simplified employee pension plan (SEP) | A simplified employee-pension plan (SEP) is an employer-funded retirement plan under which an employer makes contributions to an employee’s individual retirement account or individual retirement annuity. |
| A special use valuation of farm and business real estate | A special use valuation of farm and business real estate is subject to certain conditions, an executor may elect to value real property, devoted to farming or a closely held business use, and which is included in the decedent’s estate, on the basis of the property’s current use value as a farm or in a closely held business rather than its “highest and best use” (e.g., as the site of a suburban office park). |
| Split-dollar life insurance arrangement | A split-dollar life insurance arrangement is a method of purchasing life insurance whereby the policy benefits and premiums are divided in some predetermined way, usually between a business and an employee, or two individuals or an individual and a trust. |
| Split-dollar rollout | A split-dollar rollout is an arrangement whereby, after split-dollar life insurance has been in effect for some time, the arrangement is terminated and policy values are rolled out to reimburse the employer for its aggregate premium advances under the plan, or given to the employee as a bonus. |
| Split-funded qualified retirement plan | A split funded qualified retirement plan is a tax-qualified retirement plan established by a Company, Partnership or Sole Proprietor whereby part of the benefits are funded through life insurance and part of the benefits are funded through an investment account which is managed by the plan trustee. |
