Definitions - General Gift Planning

10% Minimum Remainder Value Test - CRTs and CGAs

Charitable Remainder Trusts
The 10% minimum remainder value test is a test that requires all charitable remainder trusts (CRT) funded after July 28, 1997 to have a remainder value equal to or greater than 10% of the funding amount. The remainder value equals the charitable deduction amount computed by PG Calc's Planned Giving Manager (PGM). It is determined according to the valuation tables found in Section 7520 of the IRS Code.

Zero Coupon Bond

A zero coupon bond is a bond that makes no periodic interest payments, but is instead sold at a deep discount from its face value. Although the owner of the bond receives no interest payments, he or she is taxed on the imputed income of the bond each year. The bond's imputed income is determined by its implied interest rate, based on its discounted price, years to maturity, and face value.

Variable Annuity

A variable annuity is a form of life insurance annuity contract whose value fluctuates with that of underlying securities or other index of performance.

The owner of the variable annuity may choose to receive income distributions at any time.

Value of $1

The value of $1 is the present value of receiving one dollar each year for a certain length of time. The value of $1 depends on the number of years the dollar will be paid and the discount rate.

In the context of planned giving, the value of $1 concept is used in computing the present value of fixed payments from a gift annuity, charitable remainder annuity trust (CRAT), and charitable lead annuity trust (CLAT). After adjustment for the payment frequency and timing, the value of $1 is multiplied by the annuity amount to compute the value of the annuity stream.

Unrecovered Investment in Contract

An annuitant's investment in contract in a gift annuity equals the present value of the annuitant's income interest. An annuitant's unrecovered investment in contract equals the total amount of tax-free payments that he would have received had he lived to reach his life expectancy, minus the total amount of tax-free payments that he actually received while alive. Capital gain income is not considered when computing an annuitant's unrecovered investment in contract.

U.S. Savings Bond

A Series EE bond is a form of U.S. Savings Bond that was introduced in 1980.

Series EE bonds are purchased at a discount and then redeemed for their face value when they mature. The imputed interest on a Series EE bond is exempt from state and local taxes. Federal income tax is due on a Series EE bond only when it matures. The tax is applied to the difference between the face value and purchase price of the bond at ordinary income tax rates.

Undepreciable Portion

In the context of a retained life estate , the undepreciable portion is the value of the land. A qualified appraisal should include separate valuations of the land and the buildings.

You must know the undepreciable portion to compute the deduction for a retained life estate.

In contrast, the depreciable portion is the value of the buildings that sit on the land. This usually means a house.

Estimated Useful Life

In the context of a retained life estate gift, the estimated useful life is the estimated length of time that the buildings will be usable. Residences are typically assigned an estimated useful life of 45 years, but a qualified appraisal should specify the estimated useful life.

You must know the estimated useful life of the buildings to compute the deduction for a retained life estate.

Estate Settlement Costs

Estate settlement costs are costs associated with settling an estate.

Estate settlement costs that may be deducted for estate tax purposes depend on state law. Costs that typically may be deducted include probate fees, legal fees, and funeral expenses. Some pre-death health care costs may also be deductible from the deceased's taxable estate.