QUALIFIED CHARITABLE DISTRIBUTIONS (QCDs)
A qualified charitable distribution is a direct transfer of funds from an IRA custodian, payable to a qualified charity, as described in the QCD provision in the Internal Revenue Code. Amounts distributed as a QCD can be counted toward satisfying your RMD for the year up to $100,000 and can also be excluded from taxable income.
You must be at least 70 ½ years at the time you request a QCD. If you process a distribution prior to reaching age 70 ½ the distribution will be treated as taxable income. For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline. The maximum annual distribution amount that can qualify for a QCD is $100,000.
With the 2018 tax law changes many more taxpayers are utilizing the Standard Deduction and not benefiting taxwise from their charitable contributions. If a taxpayer is beyond his or her RBD, and utilizing the Standard Deduction using a QCD to fulfill all or part of their RMD may allow them to reduce their taxable income and income taxes due. When considering a QCD the taxpayer should consider the effect that this may have on their Medicare Part B and Part D monthly premiums.
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee’s ERISA retirement plan accrued benefits be divided between the employee and the spouse.
QUALIFIED PERSONAL RESIDENCE TRUST (QPRT)
A Qualified Personal Residence Trust (“QPRT”) is a type of trust which permits the Trustmaker to transfer a qualified residence to a trust and retain use of the residence for a period of years. After the period of years, the residence passes to the remainder beneficiaries. This technique is often used to allow the Trustmaker to use the residence for a period of years while removing property appreciation from the Trustmaker’s taxable estate, if the Trustmaker lives beyond the period of years specified in the Trust.
QUALIFIED TERMINABLE INTEREST PROPERTY (QTIP)
An irrevocable trust for the benefit of the grantor’s spouse which qualifies for the gift and/or estate tax marital deduction, must provide that the spouse receives all of the trust accounting income at least as often as annually for life (e.g., cannot provide for reduction or cessation of income interest in the event of a spouse’s remarriage) and that no other person has any interest in the trust while the spouse is alive; principal benefit is that the grantor can control the disposition of the trust property at the spouse’s death and still obtain the gift and/or estate tax marital deduction.
Land, and generally whatever is erected or growing upon or affixed to land. Also rights issuing out of, annexed to, and exercisable within or about land. A general term for lands, tenements, and hereditaments; property which, on the death of the owner intestate, passes to his heir. Also included mineral and water rights.
One entitled to the remainder of an estate after a particular reserved right or interest has expired.
REQUIRED BEGINNING DATE (RBD)
Under the new SECURE Act (2020), the required beginning date is by the end of the year in which the owner of a qualified plan (IRA, 401(k), 403(b), etc.) has reached the age of 72. An exception to this may be someone who continues employment beyond his or her required beginning date and owns less than 5% of the employer.
REQUIRED MINIMUM DISTRIBUTION (RMDs)
Under the new SECURE Act (2020) anyone with a qualified plan (IRA, 401(k), 403(b) etc.) who has reached the age of 72, is required to take a minimum payout from their respective plan each year as income to the individual. This amount is calculated based on the prior year’s end of year account value and the life expectancy of the individual owner of the plan.
REVOCABLE LIVING TRUST
A revocable trust created by a person during his or her lifetime that provides instructions on how and when trust property should be distributed to beneficiaries during the trustmaker’s lifetime and thereafter. Inter vivos is Latin for “between the living.” A trust in which the creator reserves the right to modify or terminate the trust.
RIGHT OF SURVIVORSHIP
A right as to property owned as joint tenants or as tenants by the entirety, whereby one or more joint owner succeeds to the interest of a deceased joint owner.
An SCIN (self canceling installment note) is an installment debt obligation that, by its terms, is extinguished at the death of the seller. It is similar to a private annuity in that an asset is sold to the child on an installment basis. However, with an SCIN, the installments are shorter than the seller’s life expectancy and the child usually would pay a “risk premium” in the form of an above-market interest rate to the parent as consideration for the cancellation provision. Generally, nothing will be included in the seller’s gross estate, but any deferred gain on the installment obligation will be reported on the seller’s estate income tax return.
The SECURE ACT
The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed by Congress and signed into law December of 2019. This new law is effective January 1, 2020 and is considered some of the broadest changes to the laws regarding retirement plans (IRAs, 401(k)s, 403(b)s, etc.) to have been passed in the last 10 – 15 years. In sum, with exceptions, The Secure Act accelerates the distribution of qualified retirement plans to ten years. Consult with a qualified tax advisor regarding details.
In community property states, all property which is not held commonly by a married couple is considered separate property. In general, it is property owned by one spouse in which the other spouse does not own an interest.
A person who establishes a trust. The term settlor is used interchangeably with the terms “trustor” and “grantor” and trust maker.
An individual who cannot handle money wisely and spends it wastefully.
Trust designed to provide for the needs of a spendthrift while protecting the corpus of the trust.
An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds. Typically, the compensation is reimbursed for its payments at the death of the uninsured.
Each spouse is entitled to give any individual $15,000 (in 2020) in a calendar year without tax consequences. If a married couple tries to give more than $30,000 (in 2020) to an individual, they must file a gift tax form declaring that the gift is split between them.
A term for a married person, either a husband or wife.
A power to act on the occurrence of some certain criteria, such as an illness or incompetency. The power is said to spring into existence upon the occurrence of the event. The agent’s power to act for the principal under a durable power of attorney is sometimes a springing power.
Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.
The portion of an estate that is subject to federal estate taxes or state death taxes. Technically, all of an estate is subject to federal estate taxes, but because of the unified credit, only estates with a value over the exemption equivalent amount actually have to pay any estate taxes.
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.
TENANCY IN COMMON
A form of co-ownership. Upon the death of a co-owner, his or her interest passes to his or her chosen beneficiaries or his/her Estate and not to the surviving co-tenants.
TERM LIFE INSURANCE
Type of life insurance that provides temporary protection for a specified number of years.
A trust, set up in a will, which does not become effective until the death of the testator.
An individual who has executed a valid will and dies is said to be testate.
A male individual who executes a will. This term is becoming obsolete.
A female individual who execute a will. This term is becoming obsolete.
A legal document by which one person, called the trustmaker, trustor, donor, grantor or settlor, places property in the title of the trust for the benefit of himself or another. Normally involves trustor, trustee, who is charged with managing the trust, and beneficiary, in whose behalf the trust is established.
A person or corporation appointed by a grantor to take control of trust property and administer it for the benefit of a beneficiary named by the grantor in the trust instrument. The grantor may also designate himself as the trustee and beneficiary. The trustee has a strict duty of accountability (fiduciary) to the beneficiary.
The person who creates a trust (also known as a grantor, settlor or trustor).
A person who establishes a trust. The term trustor is used interchangeably with trustmaker, settlor, grantor, or donor.