Trust and Estates - Wealth Management
Glossary
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
- A
- Accrued Interest
- Interest earned by, but not yet paid to, the owner for the use of his or her money. Or, in the case of the sale or purchase of a bond, the amount earned since last payment date.
- Acquisition Date
- The trade date that an asset is purchased or the date of death or date of a gift.
- Actuarial Assumption
- A prediction of future conditions affecting pension costs, such as mortality rates, employee turnover, compensation levels, pension fund earnings, etc.
- Administrator
- Person named by the court to represent the estate when there is no will or the will did not name an executor or personal representative.
- B
- Basis Point
- A term used in stating bond interest. One hundred basis points equal one percent. For example, if two bonds are quoted at yield of 11.30% and 11.10%, there is a spread of 20 basis points between them.
- Beneficiary
- A person or institution named to receive the income and/or principal of a certain property. For example, the beneficiary named in a life insurance policy will receive the amount of the policy (less any loans on it) at the death of the insured. The beneficiary of a trust receives income and/or principal from a trust.
- Bond
- An investment that represents a loan of money to a corporation or government. It usually has a fixed interest rate and a maturity date.
- C
- Cash Equivalents
- Short-term investments held in lieu of cash and readily converted into cash within a short time span. (i.e., CDs, commercial paper, Treasury bills).
- Charitable Trust
- The beneficiary of income and/or principal is a qualified non-profit organization for the public.
- Charitable Remainder Trust
- This trust usually distributes the income generated by the trust principal to a designated beneficiary, with the principal to pass to a qualified non-profit organization when that beneficiary dies.
- Codicil
- A formally executed addition to or change in the terms of a will not requiring the complete rewriting of the will.
- Conservator
- An individual or a trust institution appointed by a court to care for and manage the property of an incompetent person, in the same way as a guardian cares for and manages the property of a minor.
- Current Yield
- Annual interest (or dividends) divided by current market price of a bond (or stock). For stocks, the annual dividend figure is the latest dividend times frequency; for example, a quarterly dividend times four.
- Custody or Custodial Account
- The bank as an agent takes responsibility for the physical protection of a customer's investment certificates (securities), for collecting and recording the income from that property on behalf of the customer, for buying or selling securities according to the customer's direction and for recording gains and losses.
- D
- Debenture
- Evidence of indebtedness issued by a corporation. Unlike a secured bond, a debenture is not backed by a pledge to sell specific property should the corporation be unable to pay the debt back.
- Decedent
- A person who has died.
- Defined Benefit Plan
- A pension plan that provides a fixed retirement benefit. With a defined-benefit plan, an employee's benefits are based on a definite benefit formula contained in the plan and employer contributions are then geared to provide the sums necessary to pay the benefits promised by the plan.
- Defined Contribution Plan
- A plan that provides for an individual account for each participant and for benefits based solely on the balance in the participant's account at the time of distribution. Also known as an individual account plan.
- Disbursement
- A payment of an expense.
- F
- Fiduciary
- A person or institution that takes the responsibility of acting on behalf of another person. In reference to wills, estates and trusts, the following act in a fiduciary capacity for the maker of a will, for his estate and for his beneficiaries: his attorney(s), executor(s), trustee(s) and any guardian(s) they may name. All are bound by good faith and trust.
- Fixed Income Securities
- Another name for bonds because they pay interest (income) at a set or fixed rate.
- G
- Grantor, Grantee
- A grantor is a person who transfers property to another (the grantee). The term grantor is sometimes used synonymously with trustor, the person who transfers property in a trust.
- Grantor Trust
- A trust in which the grantor retains the degree of control over the principal or income of the trust where they are considered to be the owner of the assets in the trust and the income of the trust. In such a trust, the grantor is taxed on the trust income, even if it is distributed to someone other than the grantor.
- J
- Joint Ownership
- The shared ownership of property by two or more people. The three most common types are:
- Joint Tenancy
- All of the property is considered wholly owned by each person, and it passes on the death of one to the surviving owner(s). The entire value of the property is considered part of the decedent's estate and is taxed as such.
- Tenancy by the Entirety
- Generally refers to ownership of real property only. The entire property passes to the survivor, and while both are alive, one cannot sell the property without the other's approval.
- Tenancy in Common (Co-Tenancy)
- Each person owns a part of the property and has no interest in (or right to) the other's share. Each may sell, give or will his/her part as they wish. At the death of one owner, only the value of his/her share of the property will be taxed in their estate.
- L
- Life Estate (Life Interest), Life Tenant
- A person with a Life Estate (or Life Interest) in property has a right to use the property during his/her or another designated person's lifetime. Such a person is called a Life Tenant. After the death of the life tenant, the property passes to a predetermined person or persons - it does not pass under the life tenant's will. For example, a husband gives his wife a life estate in their real property, with the property going to the children at the death of the wife.
- Life Beneficiary
- The life beneficiary of a trust receives income and/or principal amounts from that trust for the duration of his/her own or another designated person's life. The life beneficiary has no authority to direct to whom the principal will pass at his or her own death.
- Living or Inter Vivos Trusts
- Trusts that are created and go into effect while the settlor is alive. Living trusts are of two general types, revocable and irrevocable. In a revocable living trust, the trust property is transferred to the trustee and the terms of the trust agreement (or instrument) are subject to amendment or revocation by the settlor. The terms of an irrevocable trust, cannot be changed by the settlor, and the settlor has no authority to regain title to the property transferred to the trust.
- M
- Mature, Maturity
- When a bond or note (an IOU) matures, the principal amount becomes due to the holder of that note. The date of maturity on a bond or note is the date upon which the borrower promises to pay the principal amount back to the lender.
- Money Market, Money Market Fund
- The trading of short term certificates of debt - Treasury bills and commercial paper, for example. A money market fund is a type of investment company or mutual fund that purchases various short-term certificates of debt and then sells shares of ownership in its collected portfolio.
- Money-Purchase Plan
- A pension plan in which the participant's benefit is a function of the amount in the participant's plan account at distribution, rather than a function of a fixed-benefit formula. Unlike a profit-sharing plan, contributions are fixed by the plan.
- Municipal Bond
- A certificate of debt issued (sold) by a state or local government or government agency. Generally, the interest paid on such bonds is exempt from federal income tax, and, with some exceptions, state and local taxes as well.
- N
- Note
- A certificate of indebtedness - an IOU.
- P
- Pension Payment
- The amount of money paid from a pension fund on a regular basis to retired persons.
- Portfolio
- A person's or institution's portfolio is the total of all investments or the collection of investment assets. In certain trusts, the principal and income are separate portfolios because the beneficial ownership between the two may be different.
- Power of Attorney
- Authorization, by written document, that one individual may act in another's place in some or all legal matters. For example, to buy or sell their property for them. The scope of authority granted is specified in the document and may be limited by statute in some states. Power of attorney is terminated on the death of the person granting the power unless the power of attorney is coupled with an interest.
- Profit Sharing Plan
- A plan maintained by an employer to provide for the participation in its profits by its employees. This plan must provide a definite formula for allocating the plan contributions among the participants and have as its primary purpose the deferral of compensation.
- Prorate
- If the value of property is prorated, that value is altered by a certain fixed percentage.
- Prudent Man Rule
- Trustees (as fiduciaries) must manage trust property in accordance with the Prudent Man Rule requiring the trustees to handle the trust property with the same care that a prudent, honest, intelligent and diligent person would use to handle the property under the same circumstances.
- Put Option
- A kind of option in which the option holder can sell a stock he does not yet own at a set price and date in the future.
- R
- Redeem, Redemption
- To redeem is to buy back. The redemption of stock is the repurchase of stock from the stockholder by the corporation that issued it. Similarly, when a bond is redeemed, the issuer of the bond pays the principal amount back to the holder of the bond.
- Revocable Trust
- A living trust that can be changed or stopped (taken back) by the grantor.
- S
- Share
- A single unit or piece of stock. Stock is bought and sold by the number of shares.
- Shareholder/Stockholder
- A person or group that owns one or more shares of stock in a corporation.
- Stock Dividend
- A dividend payable in additional shares rather than cash.
- T
- Testamentary Trusts
- Trusts established by the settlor in his/her last Will and Testament to go into effect upon their death.
- Trust, Trustee, Trustor, Trusts
- Property in trust is held and managed by a person or institution (the trustee) for the benefit of those persons or institutions for whom the trust was created (the beneficiaries). The creator of a trust is commonly referred to as the settlor, grantor or trustor.
In a simple trust, the trust agreement requires that all income be distributed currently to the beneficiary (beneficiaries). In a complex trust the trust agreement grants the trustee discretion as to the distribution of income and principal to the beneficiary.
Of the many different types of trusts, those most common are:
- A marital or estate trust, by which the property passes to the trustee for the benefit of the spouse, who receives the income currently from the property and may draw upon or exercise a power of appointment over the principal. A marital trust, which meets set requirements, may generally qualify for the marital deduction.
- In a residual trust (sometimes called a non-marital or family trust), estate property not otherwise distributed (the residue of the estate) passes to the trustee with special instructions as to income and principal. Often, the income from the residual trust will be designated for the benefit of the surviving spouse, with the principal amount to be passed on to the children when the surviving spouse dies. Property in such a trust is taxed as part of the decedent's estate, but is not generally taxed again at the death of the income beneficiary.
- A charitable trust, whether living or testamentary, has as its beneficiary of income and/or principal a qualified non-profit organization for the public.
- A charitable remainder trust usually distributes income generated by the trust principal to a designated beneficiary, with the principal to pass to a qualified non-profit organization when that beneficiary dies.
- A charitable remainder unitrust distributes a percentage of income each year based on the value of assets in the trust. A charitable remainder annuity trust distributes a set percentage of income each year.
- In a joint interest trust, the owners place jointly held property in a revocable or irrevocable lifetime trust. The trustee issues shares representing each owner's proportionate ownership. The trustee distributes income from the trust property to beneficiaries as directed in the trust agreement and when one settlor dies, his share of the trust property passes as the trust agreement dictates.
- A grantor trust is a trust in which the grantor (settlor) retains such a degree of control over the principal or income of the trust that they are considered to be the owner of the trust and the income. Generally, for example, a grantor trust is revocable; thus the grantor is taxed on the trust income even if it is distributed to someone other than the grantor.
- An insurance trust designates a trust fund as beneficiary of one or more life insurance policies that fund the trust upon the settlor's death. If certain conditions are met, the proceeds of the insurance policies pass to the trust and the trust beneficiaries without being included in the settlor's estate.
- A contingent trust does not begin to operate until the occurrence of a specified future event.
Professionals should be consulted in regard to all matters of estate, gift and income tax liability concerning any type of trust.
- Trust Committee
- A board-designated committee responsible for the overall fiduciary activities of the Trust Division. Members of the committee are the Division Head, representatives from administration, investments and operations.
- U
- U.S. Government Obligations
- The United States Government raises money by offering many different investment vehicles to the public. All are certificates of debt and all pay interest, whether in the form of a discounted purchase price, an actual interest rate or both. The range of maturity of each can generally classify the various types of government certificates of debt.
- Treasury Bills (T-Bills) mature in 13, 26 or 52 weeks. They are sold at a discount, thus, when they are redeemed at the full, face value, they have, in a sense, accumulated interest. They are sold in units of $10,000 with additional units available for $5,000.
- Treasury Notes mature in one to seven years and are sold at par in denominations of $1,000 and up. Treasury notes pay interest semiannually.
- U.S. Savings Bonds are issued in various series and mature in seven to 10 years. The denomination and the manner in which interest is paid are dependent upon the series.
- Treasury Bonds are sold at a discount and pay interest. They mature in seven or more years. Certain issues of treasury bonds can be redeemed at their face value at death to pay estate taxes (for this reason such issues are sometimes called "flower bonds"), but a capital gains tax must be paid by the estate on the difference between purchase price and par value.
- Y
- Yield, Current Yield, Yield to Maturity
- The yield of an investment is the amount of money it pays to the owner annually, usually expressed as a percentage of the principal value of the investment.
The current yield of an investment is the amount of money it will pay the owner in the current year expressed as a percentage of the price of the investment.
In the case of a bond which matures (is to be paid back) more than one year into the future, the yield to maturity is the average annual return on the principal amount, taking into account the price of the bond in comparison to its par value as well as the interest rate and the number of years left before the bond matures.
