Definitions - General Gift Planning

Inter vivos is Latin for "during life."  An inter vivos gift is one that is given by a donor while the donor is alive.

An Individual Retirement Account (IRA) is a form of tax-free account defined by federal tax law that is designed to encourage taxpayers to save for retirement. The IRA account is set up by the individual and funded by the individual. The maximum amount people under the age of 50 may be able to contribute to their IRA in 2015 remains $5,500. For those ages 50 and up, an additional $1,000 "catch-up" contribution is typically available, for a total limit of $6,500. to an IRA. Contributions to the IRA are tax-deductible if the contributor does not benefit from any other retirement plan or meets certain income criteria. Otherwise, they are not tax-deductible.

Income tax is the tax a taxpayer must pay on his or her taxable income.  Taxable income equals a taxpayer's adjusted gross income minus all allowable deductions.  Taxpayers report their federal income tax on Form 1040.

Income in respect of a decedent (IRD) is income to which a person is entitled at death and that was never taxed during the person's life.  Examples of IRD include unpaid wages, deferred compensation, accrued interest on bonds, income from exercise of stock options, and qualified retirement plan distributions (including IRAs).

An income beneficiary is a person to whom income payments are made.  In the context of planned giving, an income beneficiary is a person who receives payments from a life income plan, such as a gift annuity or charitable remainder trust.

The inclusion ratio is the fraction of a distribution from an individual or trust that is subject to generation skipping transfer tax (GST).  For example, if a lead trust distributes $1,000,000 to a "skip person" and the inclusion ratio is .40, the amount of the distribution that will be subject to GST is .40 x $1,000,000 or $400,000.

Life income plan payments:

For life income plans that make distributions that are subject to GST, the inclusion ratio equals:

1 - (GST exemption used / (funding amount - charitable deduction))

The bargain sale ratio is computed whenever a donor funds a gift annuity or bargain sale with appreciated property.  It is the fraction of the funding property that the IRS will consider to have been sold to the charity.  It also is the proportion of the donor's capital gain in the property that the donor will have to report as capital gain income on his or her tax return.

A bargain sale is a simple agreement in which the donor sells securities, real estate, tangible personal property, or other assets to a charity for less than their current value.

In 2015, the first $14,000 that a taxpayer gives to another individual each year is excluded from gift tax under the annual gift tax exclusion.  For example, a couple with three children can give $78,000 away to their children each year without making a taxable gift.  This is because there are two donors and three recipients: 2 x 3 x $14,000 = $84,000.

The American Council on Gift Annuities (ACGA) is a national organization of charities that promotes charitable gift annuities. Among its many functions, it is a clearinghouse for information on gift annuities, sponsors the Conference on Gift Annuities every three years, and issues tables of suggested maximum annuity rates that member charities should offer to their donors.