Glossary of Retirement Planning Terms:
10% Penalty Tax: A fee mandated by the IRS should the contract owner withdrawal from an annuity before the age of 59 1/2.
1035 Exchange: Under the IRS rules, this is a tax-free transfer of an annuity contract from one insurance company to another. The main reason to use a 1035 exchange is to lock in a higher return rate.
2032A Election: An election to reduce the value of real property (either farm property or real estate used in business) for federal estate tax purposes when certain tests are met.
401(k) plan: An employee-sponsored plan offered by an employer that lets employees make contributions to a retirement investment plan on a pre-tax basis. The employer will sometimes fully or partially matching the employee’s contributions.
403(b) plan: An employee-sponsored plan that is similar to a 401(k) plan, but this type of plan is typically offered by nonprofit organizations instead of for-profit businesses. Like most retirement accounts, a 403(b) allows contributions from employees to grow on a tax-deferred basis until they are withdrawn.
457 Plan: Under the IRS rules, this type of account is used by state and federal governments and agencies. The 457 plan is a tax-exempt deferred compensation program provided to government employees. Unlike a 401(k) plan, a 457 plan never receives matching contributions from the government, nor does the IRS recognize a 457 plan to be a qualified retirement plan.
529 plan: Sponsored by individual states, pursuant to Code §529. Transfers accumulate free of income taxes. Earnings withdrawn for education are not subject to income tax; otherwise, earnings withdrawn are subject to income tax plus a ten-percent penalty. The donor designates a beneficiary, but remains in control of the use of funds and can take property back. Not includable in the donor’s estate for federal estate tax purposes, except under limited circumstances.
6166 election: An election to defer payment of estate tax attributable to operating business interests when certain tests are met.
Abatement: The reduction of a bequest under a will because of insufficient assets to pay the bequest. Ordinarily, all bequests are reduced pro rata.
Accidental Death Benefit: An additional insurance provision or rider attached to an insurance policy under which the benefits are paid out to the beneficiary based on the event of an accident.
Accidental Death Benefit Option: An additional insurance provision or rider attached to an insurance policy under which the insured has the option to withdraw a portion of the death benefit in the event of a terminal illness.
Accrued Interest: Interest that has accumulated on the underlying principal investment or since the last payment of interest.
Accrued Monthly Benefit (AMB): This is the monthly amount earned toward an employee's pension via that individual's service to the employing company.
Actuary: An individual who uses statistical mathematics to determine the premiums, dividends, reserves, and calculate pension, insurance and annuity rates for an insurance company or other fiscal risk based institution.
Adjusted gross estate: The value of all property included in an estate for estate tax purposes, less allowable debts and expenses. Prior to the unlimited marital deduction, the term was defined in §2056(c) of the Internal Revenue Code.
Adjusted Goss Income (AGI): The amount of income calculated after subtracting allowable adjustments from the total income received. These adjustments typically include contributions to an IRA, paid alimony, moving expenses, and contributions to Keogh accounts.
Adjusted taxable estate: The federal taxable estate minus the allowable deduction. This number is used to calculate the credit for state death tax purposes.
Administrator: A person or institution named by the court to represent the estate when there is no will, the will did not name an executor, or the named executor is unable to act.
After-born child: A child born after a will or trust is executed.
After-Tax Dollars: The remaining balance of money after taxes have been paid on it.
Age-Weighted Plan: A defined contribution plan in which contributions are allocated to participants using age and compensation level in order that all participants receive the same benefit accrual rate.
Alien: A person who is not a citizen of the United States. A person who is resident in the U.S. can be an alien.
Alternate valuation: A federal estate tax term for the value of the gross estate six months after death (excluding property that was sold or otherwise disposed of before that date, in which case the date of sale or other disposition is used). Can be used only if federal estate tax actually due will be reduced.
Amortization: A plan whereby regular, equal payments are used to reduce a debt, on a gradual basis, that will eliminate the debt in total by its maturity date.
Ancestor: A person from whom another has descended (whether through a mother or father).
Anniversary Date: The annual date on which an annuity starts or becomes effective.
Annual Percentage Rate (APR): A yearly percentage amount that reveals the cost of a consumer loan.
Annual Gift: An amount donated every year which under the IRS rules can provide significant tax savings for many individuals.
Annual Insurance Fee: A charge which covers administrative, mortality, and expense risk charges.
Annual Reset: A method of calculating the annual investment return for an annuity wherein the baseline from which growth is measured resets every year. With an annual reset, previous years' gains are never lost.
Annuitant: The person whose life expectancy is used to determine the term of income payments to be made under an annuity contract.
Annuitant-Driven: Insurance provisions that trigger upon age, disability, or death of a designated individual (annuitant).
Annuitization: The method of switching an annuity contract's value into an income stream identified by periodic payments made over a specified period of time.
Annuity: A retirement contract that allows individuals to make tax-deferred contributions to a retirement savings account and to select a payout option.
Annuity Certain: An immediate annuity contract from which payments are made for a defined period of time, whether or not the annuitant lives or dies.
Annuity Period: The monthly, quarterly, semi-annually, annual period between income payments made under an annuity income plan.
Anti-lapse statute: A statute that provides that the descendants of a deceased taker will receive the property bequeathed to the deceased taker. Application of the statute may be limited.
Applicable credit amount: An estate tax credit that permits the transfer of assets free of federal estate tax. The term also applies to a gift tax credit that permits tax free transfers during a person’s lifetime. The use of the gift tax credit reduces the estate tax credit.
Applicable exclusion amount: The amount of property that can pass free of tax pursuant to the applicable credit amount.
Applicable federal rate (AFR): A rate published monthly by the Treasury Department, broken down into short term, mid-term, and long term. The AFR (or a variation) is used to determine loan interest rates that will not result in imputation of interest and to determine values under various split-interest planning devices (life estates, remainders, annuities, etc.).
Arbitrage: The act of buying and selling assets in two markets at the same time to benefit from price differences or benefits between the markets.
Ascertainable standard: A power granted to a trustee to use income or principal for the benefit of a trust beneficiary in accordance with Code §2041(b)(1)(A) or §2514(c)(1)(A) (e.g., health, education, support, or maintenance).
Ask Price: The price of shares established by the broker or dealer who offers them.
Assumed Investment Rate: The absolute minimum rate of interest that must be obtained on investments in a variable annuity in order to cover the costs and expected profits of an insurance company.
Asset Allocation: A financial plan wherein the distribution of assets across major asset categories is designed to reduce risk and maximize returns on the investment.
Asset Manager: An individual whose responsibility is the management of financial assets such as immediate annuities, deferred annuities or stocks and bonds.
Asset Protection Trust (APT): A legal binding contract whose assets are not subject to the claims of a beneficiary’s creditors, including the grantor if the grantor is a beneficiary.
Assets: Property, real estate, investments, or other items of value held by a person that have positive economic value.
Assignment: The legal transfer of the ownership rights of a life insurance policy from one person to another.
Averages: A measure of the overall price level of a given market, as defined by a specified group of stocks or other securities
Audit: An independent financial and accounting examination of documents to determine the consistency and accuracy of these documents as well as whether they meet requirements imposed by law and accounting principles.
Backdating: A process for making the effective date of a policy earlier than the application date.
Back-End Charge: A fee incurred by an annuity owner for ending a contract on a deferred or variable annuity before its maturity date.
Backup Withholding: A required withholding that may be imposed when taxpayer identification numbers of the individual do not abide by rules in order to ensure the taxpayer will have taxes withheld from income.
Bailout Provision: A provision in an annuity contract that allows the owner to withdraw all funds without charge, if the renewal interest rates on a fixed annuity drop under the pre-determined amount
Balance Inquiry: A procedure that allows contract holders to check the balance of all accounts held in an annuity..
Basis Point: A unit of measure, with 100 basis points being equal to one percentage point, used to show change in an investment.
Before-Tax Dollars: Amounts within an investment that have not been subject to taxation.
Benchmark Index: A market index that serves as the standard against which to measure the performance of market allocations in a variable annuity.
Beneficial Owner: An individual, group of individuals, or entity who receives the benefits of owning an investment, regardless of ownership.
Beneficiary: The individual or legal entity receiving annuity payments when the annuitant designated in the contract dies.
Bequest: A gift of personal property under a will. A specific bequest is an identified piece or class of property. A general bequest is one that can be satisfied from the general assets of the estate.
Beta: A statistical measurement revealing the volatility of a stock or portfolio of investments, meaning how the value of the holding has risen or lowered in comparison to the general market over a defined period of time. Typically, when beta is greater than one percent the market volatility is high.
Bond: A form of debt instrument created by an institution, corporation, or municipality that wants to borrow money.
Bonus Annuity: The percentage amount added by an insurance company to the premium payments of fixed, deferred annuities with surrender charges.
Bonus Rate: An amount that is added to the principal of a deferred annuity in the first year upon which interest is calculated in later years.
Buy-Sell Arrangement: A legal contract designed to transfer, for value, an interest in a business when the business's owner retires, becomes disabled, or dies.
Bypass trust: A trust that is set up to bypass the surviving spouse’s estate for federal estate tax purposes, thereby allowing full use of the federal and possible state estate tax exemption for both spouses.
Cafeteria Plan: A benefit plan used by an employee that provides flexible deposits to be used by employees to pay for specific benefits, such as life insurance or health insurance, to put into a 401(k) plan or to use instead of a 401(k).
Catch-Up Provision: Employees with 403(b) plans can use this feature to contribute more than is usually allowed to their plans.
Certificate Annuity: An annuity in which the interest rate guarantee period is equal to the surrender charge period.
Certificate of Deposit (CD): Investments issued by banks in exchange for a cash deposit, which is held for a certain period of time and a set interest rate.
Charitable Deduction: A tax deduction taken by an individual or the estate of an individual involving a property transfer to a qualified charitable institution.
Charitable gift annuity: An annuity received by an individual when the individual sells property to a charity in exchange for the annuity.
Charitable lead trust (CLT): An irrevocable trust with a fixed term naming a charity as the income recipient (annuity interest or unitrust interest) with the remainder passing to non-charitable beneficiaries.
Charitable remainder annuity trust (CRAT): A trust providing an annuity or unitrust distribution to an individual (possibly including the grantor) or individuals that will distribute to charity after the death of the individual or individuals. The annuity is based on the initial value of the trust and never changes.
Charitable remainder trust (CRT): A trust providing an annuity or unitrust distribution to an individual (possibly including the grantor) or individuals that will distribute to charity after the death of the individual or individuals.
Charitable remainder unitrust (CRUT): A trust providing an annuity or unitrust distribution to an individual (possibly including the grantor) or individuals that will distribute to charity after the death of the individual or individuals. The unitrust amount changes annually based on changes in the value of the trust assets.
Children’s Term Insurance Rider: An insurance plan which covers the insured’s dependents for a flat premium.
Class gift: A gift (by will, trust, or otherwise) to individuals who are defined by a common class description (e.g., "children," "grandchildren").
Cliff Vesting: A vesting schedule under which employees will not receive any part of a retirement plan benefit until "fully vested," or under a predetermined number of years of service to the employer.
Co-Annuitant: A second individual whose life determines the length of an annuity contract.
Codicil: A written change to a will.
Collateral: Property provided by an individual obtaining a loan as security for repaying the loan amount.
Community property: Property acquired during marriage other than property received by gift or inheritance. Applies in approximately 14 states (mainly Southwest and West plus Wisconsin). There are small differences from state to state. Each spouse has an undivided one-half interest in such property.
Compound Earnings: The reinvestment of earned interest back into the investment.
Compound Interest: Interest on investments that accrues on both principal and accumulated interest.
Confinement Waiver: A provision in which surrender charges are waived if the annuity owner must be cared for in a hospital or long-term care facility due to medical necessity.
Conservator: An individual or institution appointed by the court to administer the affairs of a disabled adult. Also referred to as a "guardian."
Constructive trust: A trust imposed by a court of equity in order to keep a just result without regard to the intention of the parties.
Consumer Price Index (CPI): The percent change in costs of consumer goods and services. CPI is a measure of consumer-felt inflation, measuring how far your dollar goes towards buying common goods and services.
Contingent Annuitant: An individual designated to receive annuity payments upon the death of the original annuitant.
Contract Owner: The person, couple, or entity that buys an annuity contract.
Contract Termination: The required end to an annuity due to death of the annuitant.
Contract Value: The total amount of paid premiums and earnings, less any charges, withdrawals, or fees that may apply.
Convertible Bonds: Debt instruments that can be converted to shares of common stock in the same organization at the request of the bondholder.
Corporate Gift: A gift given by a corporation to a designated entity in which state or federal tax benefits may be derived.
Cost Basis: The initial investment or payment paid to an annuity.
Cost of Insurance PS58: The arrangement where life insurance protection is used to fund benefits in a qualified retirement plan or Section 403(b) tax-deferred annuity.
Cost of Waiver: A provision available on qualified life insurance contracts that provides for the waiver of payment of premiums that are due while the insured is totally disabled.
Credit for prior transfers: A credit against the federal estate tax for the federal estate tax paid on another estate.
Credit for state death taxes: A credit against the federal estate tax for death taxes paid to a state. Being phased out and will become a deduction.
Credit shelter amount: The amount that can pass estate tax free to heirs pursuant to the applicable credit amount.
Credit shelter trust: A trust that is set up to bypass the surviving spouse’s estate for federal estate tax purposes, thereby allowing full use of the federal, and possible state, estate tax exemption for both spouses.
Crummey power (or Crummey right of withdrawal): A limited withdrawal power from an irrevocable trust. Usually, the power lapses after a specified (short) period of time. The presence of such a power creates a present interest (for gift tax annual exclusion purposes) in the person to whom the power is given, regardless of whether the power is exercised. See Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968).
Current Interest Rate: The rate set by an insurance company that determines what an annuity is paying at the time of issue and is guaranteed for a specific length of time.
Death Benefit: The insurance contract amount paid to a designated beneficiary when the annuity contract's owner dies.
Debt Instruments: Investments where returns are made by charging interest through the lending of money. CDs, treasuries, government bonds, loans, and promissory notes are all debt instruments that promise to return principle plus interest at a future date.
Debenture: An unsecured bond or debt instrument that is backed by the integrity of the borrower and/or the good reputation of a company rather than by collateral.
Declaration of Trust: A trust that is created during the lifetime of the grantor and may be amended or revoked by the grantor during the grantor’s lifetime. It will usually be used as the ultimate vehicle for the distribution of the grantor’s assets when the grantor dies. Also known as a "revocable trust."
Decreasing Term: A life insurance contract that provides a death benefit which decreases throughout the term of the contract, reaching zero at the end of the term.
Defective Grantor Trust: An irrevocable trust that contains a defect causing the income (and usually the capital gains) of the trust to be taxed to the grantor.
Deferred Annuity: An insurance contract that provides a way to accumulate monies tax-deferred.
Deferred Compensation: Compensation for services rendered provided under an agreement stating that such compensation will be paid sometime in the future, after the actual services have been performed.
Defined Benefit Plan: An employer-provided retirement plan that guarantees an employee specified retirement income, usually based on a formula that takes years of service and salary level into account. A pension plan is a defined benefit plan.
Defined Contribution Plan: An employer-provided retirement plan that does not require the employer to contribute a stated dollar amount but instead ties contributions to the employer’s profit levels (usually based on a formula). A profit-sharing plan is a defined contribution plan.
Defined Debit Plan: An employer sponsored pension plan in which a lifetime retirement income is guaranteed on the basis of employee income and/or total years of service to the employer.
Descendant: A person in the direct line of descent, such as a child or grandchild. Also referred to as a "lineal descendant."
Devise: A gift of real property under a will. A "specific devise" is an identified piece or class of real property.
Direct Rollover: The non-taxable transfer of an eligible retirement plan which occurs from one investment company directly to another.
Discretionary Income: The amount of money from income that remains after an individual pays essential expenses, such as healthcare, food, housing, and taxes.
Disposition: The ability to distribute monies pending the termination of an annuity.
Diversification: The distribution of assets to several different types of investments so as to reduce the risks associated with any single investment, the idea being that losses in one area would be offset by gains in another.
Dividend: The portion of the profits of an entity that its board of directors allocates for distribution to shareholders.
Dollar Cost Averaging: An investment strategy where there is an investment of a fixed amount of dollars at regular intervals.
Domestic Trust: A trust with one or more U.S. persons having control (the control test) over all substantial decisions (including distribution or investment decisions and powers to remove, add, or replace trustees) and over the administration of which a court within the U.S. (the court test) is able to exercise primary supervision. A trust is presumed to meet the court test if the trust does not direct administration outside the U.S., the trust is administered exclusively in the U.S., and the trust is not subject to an automatic migration provision.
Domicile: An individual’s permanent legal and intended home. A person can have only one domicile though residing in several locations.
Double Indemnity: The payment of double the basic benefit in the event of loss resulting from specified causes or under specified circumstances, such as accidental death.
Durable power: Powers of attorney in a state continue even if the principal becomes incapacitated.
Duration: The timeframe of an annuity contract: anywhere from 1 to 20 years.
Dynasty Trust: A trust that lasts until terminated by the rule against perpetuities or, potentially, forever if a jurisdiction does not have a rule against perpetuities.
Employee Retirement Income Security Act (ERISA): The federal law that formed the basis for pension regulation by establishing requirements for nondiscrimination, vesting, participation, reporting and disclosure, as well as standards for funding and fiduciary responsibilities.
Employer Plan: A regulated and restricted tax-qualified worker retirement plan that an employer establishes to benefit employees.
Endorsement: An additional provision to an insurance policy that includes provisions superseding those of the original policy. It is also known as a rider.
Endowment: A life insurance contract designed to pay a lump sum after a specified term, on its maturity, or on death.
Enhanced Dollar Cost Averaging Program: An investment strategy designed to provide a higher rate of return.
Entity Agreement: A form of a buy-sell agreement in which the company agrees to purchase the interest of a deceased or disabled partner.
Equitable Apportionment: A legal doctrine that requires the recipients of probate and nonprobate assets to all pay their proportionate share of death taxes and administration expenses. Provisions in the will can overrule this doctrine.
Equity Indexed Annuity: An annuity that provides the investor with choices of a guaranteed rate of interest that is often higher than bank CDs, and/or offers a return from a specific stock market index. Also known as a Fixed Index Annuity.
Equity Investment Style: The allocation of investment types in an annuity.
Equity Vehicle: Types of investments involving ownership of company stock, futures, commodities, or real estate.
Estate Freeze: Any of a number of estate planning techniques typically used to prevent the value of an owner’s interest in a business or asset from increasing after the technique is implemented. Used to prevent estate tax liabilities from increasing as property values increase.
Estate Planning: Refers to the preparations made for the administration and disposition of an individual's property either on or after his or her death.
Estate Tax: A transfer tax imposed at death on the value of property.
Evidence of Insurability: A statement of information by an insurance company needed for the underwriting of an insurance policy.
Excess Contributions to an IRA: Additional monies paid to a qualified plan that exceeds the combined deductible and nondeductible limits established by the IRS and can be subject to penalties if not removed.
Exclusion Ratio: A calculation used to determine the taxable and non-taxable parts of each payment to an annuitant from an immediate annuity. Part of each payment is considered a return of principal and therefore not subject to taxation, while the remainder includes earnings on interest, which are taxable.
Executor: The individual or institution named in a will who is responsible for management of the assets, payment of debts and taxes, and ultimate transfer of the property passing under the will.
Exemption Equivalent: The amount that can pass estate tax free to your heirs pursuant to the applicable credit amount. For gift tax purposes, no increases from $1 million.
Express Trusts: A trust established by a written instrument or by an oral agreement of the parties. Compare to Constructive trust or Resulting trust.
Family Limited Partnership (FLP): A device used to control assets and transfer property interests among family members.
Fiduciary: A strictly regulated individual or organization that exercises control over a pension plan and/or the assets it holds.
Fiscal Year: A period of 365 days that is used for purposes of accounting and taxation. It is not necessarily the same period as a calendar year.
"Five and five" Power: A noncumulative general power of appointment giving the power holder the right to withdraw the greater of $5,000 or five percent of a trust share. By specific exception under the estate and gift tax provisions of the Code, the lapse of such power has no gift or estate tax consequences (except for the year in which the power holder dies).
Five-Year Annualized Total Return: A percentage calculation which reflects an annuity’s sub-account’s total return averaged over five years.
Fixed Annuity: A CD-Type or fixed annuity is an annuity that provides a guaranteed rate of interest that is often higher than bank CDs. Most CD-Type or fixed annuities have terms ranging from 1 year up to 15 years.
Fixed Benefit: A dollar amount of a contract benefit which does not vary.
Fixed Index Annuity: An annuity that provides the investor with choices of a guaranteed rate of interest that is often higher than bank CDs, and/or offers a return from a specific stock market index.
Fixed Deferred Annuity: An insurance company contract that offers a guaranteed interest rate plus safety of your principal and earnings, in which the interest rate will be periodically reset but will never fall below a specified rate.
Flat-Rate Premium: A premium rate based on the entire premium income received by the ceding company from business ceded to the reinsurer, as distinguished from a rate applicable only to the excess limits premium.
Flexible Premium: A type of annuity that may be invested into multiple times in the future. After depositing the initial premium, further investment can be made into the same annuity (similar to a money market account).
Flexible Premium Deferred Annuity (FPDA): An annuity in which accumulations result from a series of payments prior to liquidation.
Flip Charitable Remainder Unitrust: A charitable remainder net income unitrust that converts to a regular unitrust upon the happening of an event (e.g., the sale of a non-marketable asset, the attainment of a defined age, or the retirement of a beneficiary).
Forced Annuitization: The mandated liquidation of an annuity and distribution of funds, triggered by the death the annuitant, or if the annuitant reaches certain maximum age.
Foreign Tax credit: A credit against the federal estate tax for death taxes paid to a foreign nation.
Foreign Trust: A trust that is not a domestic trust.
Forfeiture: The amount lost when a pension plan participant leaves the employing organization before becoming fully vested under the plan's schedule.
Form 706: The federal estate tax return.
Form 709: The federal gift tax return.
Form 1041: The federal trust or estate income tax return.
Fractional marital formula: A formula that determines the amount of property passing to a marital trust as a fraction of all the assets.
Free Look Provision: A provision in an annuity contract stating that the owner of the contract has between ten and 30 days to review the contract immediately after buying it.
Free Withdrawal Provision: A provision in an annuity contract that allows the owner to withdraw some part of its face value, without the imposition of a withdrawal charge, during the accumulation period.
Front-End Load: A charge or fee imposed on an investment purchase. When such charges are imposed at the time of an investment's sale, they are called back-end load.
Frozen Plan: A qualified retirement plan that does not allow for the continuing benefits accruals of or additional contributions for current employees and also does not permit the recognition of new plan participants.
Fully Funded: A situation where a pension plan has enough assets to pay for all of its current benefits and those promised for the future, it is said to be fully funded.
General Power of Appointment: A power to appoint property to anyone including the appointer or the appointer’s estate or creditors.
General Power of Appointment Marital Trust: A type of marital trust over which the surviving spouse can have most of the control. The surviving spouse must receive the income and must have a lifetime or testamentary general power of appointment.
Generation-skipping Transfer Tax-exempt Trust (GST trust): A trust that usually benefits multiple generations and is not subject to the GST tax because the GST exemption was allocated to it and it was initially equal to or less than the GST exemption. The term also applies to a trust grandfathered from the application of the GST tax. A GST trust is not subject to estate tax when a beneficiary dies.
Generation-skipping Transfer Tax Exemption (GST exemption): The value of property that can be set aside for a beneficiary two generations or more younger than the donor or the decedent (e.g., a grandchild) without the imposition of the tax.
Generation-skipping Transfer Tax (GST tax): A tax in addition to the estate or gift tax imposed when property passes to a beneficiary two generations younger than the donor or the decedent (e.g., a grandchild).
Gift Annuity: An insurance contract between a foundation and a donor, under which the donor provides property to a charity in exchange for the foundation’s payment of an annuity.
Gift Tax: A tax imposed on transfers of property by gift during the donor’s lifetime.
Gift Tax Annual Exclusion: A gift that is not considered a taxable gift. The law permits the exclusion each year of the first $13,000 in gifts made to any one donee; married couples may jointly give up to $26,000 to any one donee tax free. There is no limit to the number of donees to whom the donor may make gifts in any year. In addition to the $13,000 gifts, the exclusion also includes direct payments of tuition and medical care expenses. The term generally applies to outright gifts and transfers under a uniform transfers to minors act but also gifts in trust in limited circumstances. The donor of a 529 plan (see above) may use five years of annual exclusions in one year.
Government Securities: Investments which enjoy high credit ratings since they are backed by the fully credit of the federal government, include bonds and other debts programs that are issued by the Treasury Department.
Grantor: An individual who establishes a trust; also can be referred to as the "settlor" or the "trustor."
Grantor retained annuity trust (GRAT): An irrevocable trust in which the grantor retained an annuity for a period of years.
Grantor retained unitrust (GRUT): An irrevocable trust in which the grantor retained a unitrust interest for a period of years.
Grantor trust: A trust, revocable or irrevocable, of which the income and capital gains are taxed to the grantor. See Intentionally defective grantor trust.
Gross estate: All property subject to estate tax in the decedent’s estate (e.g., probate property, joint tenancy property (only one-half if between spouses), land trusts, revocable trusts, insurance owned by the decedent, profit-sharing plans, IRAs, 401(k)s) regardless of whether it qualifies for a marital or charitable deduction.
Growth Fund: A mutual fund investment designed to provide long-term capital gains and growth instead of current income.
Guaranteed Interest Contract Annuity: An insurance contract in which the interest rate is guaranteed for a specific amount of time.
Guaranteed Interest Rate: The lowest interest rate an insurer will credit during an annuity contract's accumulation phase, usually between three and four percent.
Guaranteed Minimum Surrender Value: A requirement by the National Association of Insurance Commissioners, which requires investors to at least receive 90% principle + 3% for every year the contract was held.
Guardian of the Estate: An individual or institution legally responsible for the management of the assets of a minor or disabled adult. The guardian is appointed by the court and is under its supervision.
Guardian of the Person: An individual or institution legally responsible for the care and well-being of a minor or disabled adult. The guardian is appointed by the court and is under its supervision.
Hanging Power: Generally, a Crummey power that lapses gradually over a period of years.
Health Care Power: A power of attorney that allows the agent to make health care decisions for a principal.
Heirs: Persons who take a decedent’s property if the decedent did not have a will. State law dictates who are a decedent’s heirs.
Holding Period: The duration of time in which an investor has ownership of a capital asset.
Hybrid Annuity: An insurance contract that combines multiple features of fixed annutiy contracts (i.e.: lifetime income, heathcare payouts, guaranteed growth, etc...)
Immediate Annuity: An insurance contract that begins its payout immediately or within a year.
Income Beneficiary: A person or persons currently entitled to the income of the trust (including persons entitled to income at the discretion of the trustee).
Income Fund: A type of investment fund designed to provide current income instead of capital growth. Such funds frequently include bonds as other fixed-income holdings.
Income in Respect of a Decedent (IRD): Property that if collected by the decedent before he or she died would be subject to income tax (e.g., insurance commissions, payments under an installment sale, or profit-sharing proceeds).
Income or Payout Options: The various methods an owner of an annuity contract may receive income from an immediate annuity.
Incontestable Clause: A provision in a policy specifying that if a policy has been in effect for a given length of time, the insurer shall not be able to contest the statements contained in the application.
Index: A statistical scheme that measures and tracks the performance of similar investments as a group.
Index Fund: A type of investment fund that holds bond or stock investments with the goals of matching a specific market index.
Indexed Annuity: A type of insurance contract that provides the investor with choices of a return from a specific stock market index or indexes.
Individual Retirement Account (IRA): A retirement program that that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred.
Inheritance tax: A tax levied by a local government (usually a state) on property that is inherited. The amount of tax relates to each inheritance received rather than the total size of the decedent’s estate. Tax rates usually depend on (a) the relationship of the beneficiary to the decedent and (b) the total value of the bequest received by the beneficiary.
Initial Interest Rate: The percentage of interest that is applied to the first deposit made to a fixed, deferred annuity, with the length of time this rate is guaranteed specified in the annuity contract
Intangible Property: Personal property that is representative of other rights (e.g., stock in a corporation, bank accounts, interests in a partnership even if the partnership owns real estate, or a beneficial interest in a land trust) as contrasted with personal property that can be touched or otherwise perceived by the senses.
Insurability: Suitability to the insurer of an application for insurance.
Insurable Interest: The determination wherein upon the death of the insured, an individual would suffer financial loss.
Insurance Policy: A contract between an insurer and the insured.
Insurer: The insurance company to whom the owner pays the premium.
Integration: A way of combining a qualified benefit plan with Social Security benefits so that the qualified plan may discriminate in favor of highly compensated employees to the extent allowed
Intentionally Defective Grantor Trust (IDGT): An irrevocable trust that contains a defect causing the income (and usually the capital gains) of the trust to be taxed to the grantor.
Interest: Amounts paid by banks, entities that issue bonds, and other financial institutions for the use of money provided on loan.
Interest-Only Option: A settlement choice for annuities in which an individual is paid only the interest on the maturity proceeds.
Intestacy Law: A state law that governs the distribution of an individual’s estate when the individual does not have a will or the will does not completely dispose of the assets (or the individual does not dispose of the property in another manner, e.g., revocable trust, beneficiary designation, or joint tenancy).
Intestate: A term used to describe the estate of an individual who has not made a valid will.
Irrevocable Trust: A trust over which the grantor has no power to revoke or amend.
Irrevocable Life Insurance Trust (ILIT): An irrevocable trust established for the purpose of excluding life insurance proceeds from the estate of the insured (and the insured’s spouse if married) for estate tax purposes.
Joint Annuitant: An individual named in an annuity contract in addition to the owner. This person's age and life expectancy are used along with those of the contract owner to calculate the amount of annuity payments.
Joint Life Annuity: A type of insurance contract that continues to provide payments to a spouse after the death of the contract owner, regardless of the date of the death. It also allows for the designation of additional beneficiaries if the spouse dies.
Joint Owner: A person who co-owns an annuity contract with another person. Both have the right to make and approve decisions relating to the contract.
Joint Tenancy: A form of joint ownership in which the death of one joint owner results in the immediate transfer of ownership to the surviving joint owner.
Lapse: The termination of a right or a power usually due to inaction on the part of the person holding the right or the power.
Lapsed Policy: An insurance contract which has been allowed to expire because of nonpayment of premiums.
LEAPS: Call or put options that have long expiration dates, typically between two and five years rather than the more common nine months period.
Life Annuity: An insurance contract that pays a set amount on a regular, periodic basis, for the duration of the annuitant's life.
Life Estate: An interest limited to use during a person’s life or the life of another.
Limited Power of Appointment: A power to appoint property to anyone other than the appointer or the appointer’s estate or creditors. Usually a defined group such as "descendants and their spouses."
Liquid Assets: Cash or equivalent assets that can be readily converted into cash without any serious loss. Examples would be cash, Treasury bills, money market fund shares, and certificates of deposit.
Living (inter vivos) Trust: A trust that is created during the lifetime of the grantor and may be amended or revoked by the grantor during the grantor’s lifetime. It will usually be used as the ultimate vehicle for the distribution of the grantor’s assets when the grantor dies. Also known as a "revocable trust."
Living Will: A document authorizing a physician to withdraw life support in certain limited circumstances.
Level Term Insurance: A type of term life insurance policy where the face value remains the same from the effective date until the expiration date.
Life Insurance: A contract that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.
Liquidity: The ability to quickly convert assets into cash by an individual or organization without incurring significant losses of value.
Load: The sales fee or charge imposed on the owner who buys an annuity contract.
Long Position: An agreement between parties for one to buy an asset at a particular, set date in the future for a pre-determined price.
Long Term Care Insurance: An insurance contract that provides benefits for the chronically ill or disabled over a long period of time.
Lump-sum Distribution: A payment made from a "tax-advantaged" retirement plan that is made in one payment rather than in installments.
Marital Deduction: A deduction that is available for transfers between spouses, either during lifetime or at death. Such transfers are exempt from gift and estate tax but subject to estate tax at the death of the surviving spouse. The deduction is not applicable if the donee spouse is not a U.S. citizen.
Marital/family Trust Plan: An estate plan that divides property between two trusts — one trust equal to the exemption equivalent that is not subject to estate tax at the surviving spouse’s death and another trust that qualifies for the marital deduction. Also known as a Marital/non-marital trust plan, Marital/family trust plan, and Marital/residuary trust plan.
Marital property: Property that arises during marriage other than property received by gift or inheritance. The concept applies in dissolution of a marriage and does not govern the disposition of property at death.
Market Value Adjustment (MVA): A fixed annuity characteristic in which there is a guaranteed rate unless the contract owner withdraws amounts that exceed a specific free-withdrawal amount, or if the owner terminates the annuity contract before it matures.
Maturity Date: The date on which an annuity starts to make income payments to the owner.
Maximum Marital Deduction: The maximum marital deduction allowed; since 1982, equal to all of a decedent’s gross estate.
Medicaid Annuity: The attorney guided process of using an immediate annuity to help protect assets against the high cost of nursing homes and expensive healthcare charges.
Medical Information Bureau (MIB): A cooperative data exchange that stores coded information on the health histories of persons who have applied for insurance from subscribing companies in the past.
Merger of title: Occurs when all beneficial interests in an asset (such as a life estate and a remainder) become simultaneously owned by one or more persons, resulting in the owners holding a 100-percent interest in the asset.
Minor: A person who has not reached the age of majority (legal age); in most states, the age of majority is 18.
Minority discount: A discount allowed when valuing an asset that is not publicly traded; the discount is allowed because of a lack of liquidity and /or lack of control.
Money Market: Investment that are liquid and low-risk short-term assets, including Treasury bills and negotiable Certificates of Deposit.
Money Market Fund: A type of investment fund that makes investments in a variety of short-term debt, including Certificates of Deposit and Treasury bills.
Money Market Portfolio: A collection of financial investments owned by the same individual or organization.
Morningstar Rating: A five-star rating system of investments based on their quality as measured by Morningstar, an independent provider of investment information, with five stars being the highest possible rating.
Mortality Cost: The first factor used in determining life insurance premium rates, in which insurers have an idea of the probability that any person will die at any particular age.
Mortality Table: A chart showing the incidence of death at specified ages, used to determine the mortality cost.
Mortality and Expense Risk Charge (M&E): A charge or fee for insurance guarantees, including the death benefit, the choice of guaranteed lifetime payout options and the guarantee that insurance charges will not increase.
MYGA Annuity: An insurance contract which guarantees fixed payments for a particular period of time to the annuity owner.
Multiple Premium Annuity: An insurance program that requires more than one premium payment.
Mutual Fund: A financial investment combining the funds of many individuals in order to invest these funds in a range of financial instruments. A financial service company usually establishes this type of account.
Natural Guardian: A person who has a natural right to guardianship of a minor child because of a parental relationship.
Net Income Charitable Remainder Unitrust (NICRUT): A type of Charitable remainder trust. The individual or individuals receive the lesser of the net income or the unitrust amount.
Net Income Makeup Charitable Remainder Unitrust (NIMCRUT): A type of Charitable remainder trust. The individual or individuals receive the lesser of the net income or the unitrust amount, but if income ever exceeds the unitrust amount, it can be used to make up for years in which the net income was less than the unitrust amount.
Net Worth: The difference between the total value of an individual's assets and the total of all of his or her liabilities.
Next of Kin: See Heirs. Historically, referred to as takers of personal property.
Non-ascertainable Standard: A power granted to a trustee to use income or principal for the benefit of a trust beneficiary not in accordance with Code §2041(b)(1)(A) or §2514(c)(1)(A) (e.g., comfort, welfare, best interests, or happiness).
Non-marital Property: All property that is not marital property.
Non-Medical: A life insurance contract underwritten on the basis of an insured’s statement of his health with no medical examination required.
Non-Prescribed Annuity: The part of a non-prescribed insurance contract that can be attributed to the return of capital and is therefore not subject to taxation; the interest portion is taxable, however.
Non-Qualified Deferred Annuity: An insurance contract that provides for tax deferral of investment income until withdrawn from the contract.
Non-Qualified Income Annuity: An insurance contract that provides periodic payments based on life or joint life expectancies and/or a period certain, the amount used to purchase the contract, the terms of the payout, and an assumed return rate.
Non-Qualified Sources: Investments where the money has already been taxed, such mutual funds and CDs.
Non-Resident Alien (NRA): An individual who is not a citizen of the United States or does not maintain a tax residence within the country, who is subject to special tax consideration, including foreign fiduciaries, foreign partnerships and foreign corporations.
OBRA trust: A trust established containing the assets of a disabled individual created before the disabled individual attains age 65 by the individual’s parent, grandparent, or legal guardian or a court and allowing the beneficiary to obtain state aid (medicaid) without exhaustion of the trust assets, provided the state recovers its money (to the extent of trust assets) at the death of the individual. The trustee may use trust assets for the beneficiary for items beyond what the state will provide for the individual. Created by an amendment to the Social Security Act made by §13611 of the Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, 107 Stat. 312.
Occupational Hazard: A characteristic of an occupation that increases the peril of accident, sickness, or death, usually resulting in higher premiums for the insured.
Offshore Annuities: Insurance contracts which allow for tax-deferred account accumulation and build up through offshore investment funds.
One-Year Annualized Total Return: An average percentage figure reflecting a sub-account’s total return over one year.
Owner-Driven: An insurance contract whose provisions trigger upon the death, reaching of a certain age, or disability of the contract owner. This is in contrast to typical annuities, which designate an annuitant that may or may not be the contract owner.
Participant: A person who participates in a retirement plan sponsored either by his employer or, if self-employed, by himself or herself.
Participation Rate: Also called the Index Rate, this refers to the part of the index's increase credited to an equity-indexed annuity's account value. In some contracts, a cap is imposed on this amount.
Payable-on-death (POD) Account: A deposit of money in a bank account in one’s own name with a designated beneficiary. The account creator-owner owns and controls the account without restriction during his or her life. At the death of the account creator-owner, the beneficiary becomes the account owner.
Payout Period: The duration of time during which an annuitant is provided payments from an immediate annuity plan.
Payout Ratio: A calculation achieved by dividing the dividend amount by the earnings amount.
Pecuniary Bequest: A bequest, by any form, of a specific amount of money. The amount may be determined by formula, but the specific dollar amount must be determined with only one result.
Pecuniary Legacy: A gift of money by will.
Pecuniary Marital Formula: A formula that determines the exact dollar amount of property to be allocated to a marital trust.
Pension Plan: An employee qualified plan designed to provide payments to an employee upon retirement. Pension plans comprise a yearly funding commitment from employers, no access to plan funds before retirement, and restrictions on investments in employer stock to ten percent.
Per Capita: Distribution to members of a group equally (e.g., "children of X" or "descendants of X").
Percentage Change: The difference in the S&P 500 index from the beginning of the term to the end of the term expressed as a percentage.
Period Certain: A specified number of years during which a benefit is guaranteed to continue.
Periodic Transfer: A switching of ownership from one party to another or a movement of funds from one account to another.
Permanent Life Insurance: A term used to describe life insurance policy forms, other than Group and Term, which do not expire.
Perpetuities, Rule Against: A common law rule or state law that terminates a trust 21 years after the death of the trust beneficiaries living at the time the trust was created.
Personal Representative: Another name for an executor or administrator.
Per Stirpes: Distribution to members of a multi-generation group (descendants) with members of a younger generation taking only if their parent is deceased. For example, X has three children, A, B, and C; if all three are living, they take equally; if A is deceased and has two children, A’s two children split the share A would have taken if living; If A is deceased and has no descendants, B and C take the property equally.
Point-to-Point: A way of determining index annuity yield. The total yield is simply the difference in index value from the day the annuity is purchased to the day it expires.
Policy Fee: A charge added to each insurance policy that is usually the same for all ages and amounts.
Portfolio: A group of investments managed for an individual.
Posthumous Child: A child born after his or her father’s death. Compare to After-born child.
Pour-over Will: A will that is used in conjunction with a living trust to "pour over" any assets to the trust that are not transferred to the trust prior to death.
Power of Appointment: A right conferred on one or more persons (donees of the power) under a will or trust giving the power holder the ability to name a person or entity (beneficiary under the exercise of the power) who will receive property originally owned by the first person (grantor of the power).
Power of Attorney: A written instrument authorizing an agent (sometimes called the "attorney in fact") to act on behalf of the person who signed the instrument (the principal). If the agent is authorized to act in all matters, the agent has a general power of attorney. If the authority granted in the instrument is not affected by the disability of the principal, the agent holds a durable power of attorney. If the agent’s powers become effective only upon the happening of an event described in the instrument, the agent holds a springing power of attorney.
Precatory Words: Provisions in an instrument requesting that someone take or refrain from taking some action but not requiring it.
Predeceased Ancestor Rule (or Predeceased child rule): In generation-skipping, when the parent of the taker who is a descendant of the transferor is not living at the time of the transfer, the taker is placed in the generation of the deceased ancestor. The rule can apply to collateral heirs such as grandnieces and grandnephews if the transferor has no living descendants.
Preferred Risk: Risk considered to be lower than the standard risk upon which the premium rate was calculated.
Premature Distributions: The withdrawal of earnings amounts from an annuity program before the annuity contract's owner reaches 59.5 years of age.
Premium Bonus: Additional monies that are credited by an insurer to an annuity, expressed as a percentage of the deposited amount.
Premium Tax: A separate tax imposed on premiums for life insurance or an annuity plan by state governments. While not all states impose this tax, those that do may have different regulations for qualified and non-qualified programs.
Prescribed Annuity: Insurance contracts that offer non-taxable returns on investment, and the annuitant's interest income is included at a steady rate during the entire term of the annuity. The amount taxed is lower than that in a non-prescribed annuity early in the term, but rises later on.
Pretermitted Child: A child born after a parent has executed a will (a) who is not provided for in the parent’s will and (b) whose exclusion from the will is not expressly provided for in the will itself.
Previous Month-End (AUV): An amount that reflects the previous months accumulated unit value price.
Previously Issued Annuity: Also known as a structured settlement, is the purchase of part or all of a injured party’s settlement (or annuity payments) in return for a lump sum payment. Companies then sell the payment stream to another investor. This transaction requires the investor to put money down (an escrow) and obtain the approval of the presiding judge and the insurance company.
Primary Beneficiary: The person named as first in line to receive payments or benefits from a policy when they become available.
Principal: The total amount of deposits that an annuity contract owner has put into the annuity, excluding earned interest.
Private Annuity: A transaction in which an individual sells property to another individual, corporation (other than a company in the business of issuing annuities), trust, or partnership in exchange for an annuity.
Private Foundation: Typically, a charitable trust or not-for-profit corporation that makes gifts to operating charities. Often controlled by the individual (or members of the individual’s family) establishing the foundation. Gifts to private foundations will usually qualify for a charitable income, gift, or estate tax deduction.
Probate Estate: Property that passes under a decedent’s will (or as directed by law under the intestacy statute if the decedent died without a will).
Property power: A power of attorney that grants the agent the power to act with respect to the principal’s property.
Prospectus: A written document that must be provided under federal regulations to the prospective buyer of a security before the actual sale. The document describes the investment goals of accounts, past performance of any sub-accounts included, and defines fees and other expenses.
Prudent Investor Rule: The contemporary version of the Prudent Man Rule. It signifies the standard to be applied to a fiduciary, such as a trustee, requiring the fiduciary to invest and manage all assets as would a prudent investor under like circumstances, taking into account risk management and investment diversification.
Prudent Man Rule: The older standard to be applied to fiduciaries, requiring the fiduciary to invest and manage all funds as would a prudent man under like circumstances.
Qualified Annuity: An insurance contract bought with the intention to fund or distribute money from a tax-qualified plan, generally with paid premiums reducing current income tax and the use of tax-deferred accumulations.
Qualified Domestic trust (QDOT): A type of marital trust that must be used to obtain an estate tax marital deduction if the surviving spouse is not a U.S. citizen. Not available for lifetime gifts.
Qualified Retirement Plan: Any investment plan or arrangement eligible for special federal income tax treatment. Rated: Coverage issued at a higher rate than standard because of a health condition or impairment of the insured.
Qualified Perpetual Trust: A trust that is not subject to the rule against perpetuities.
Qualified Personal Residence Trust (QPRT): A trust funded with the grantor’s residence and/or vacation residence that, after a term of years in which the grantor retains the right to live in the home rent free, will pass to the remaindermen.
Qualified Terminable Interest Property (QTIP) trust: A type of marital trust over which the surviving spouse may have only limited control.
Quasi-community Property: In California, property of a married couple moving to California from a common law state that, upon dissolution of marriage or death, will be considered community property.
Ratchet Annuity: An insurance contract in which that annuitant is better able to capitalize on market gains while protecting the principal during market declines.
Remainderman (remaindermen): A person or persons entitled to principal at the death of an income beneficiary or beneficiaries.
Renewable Term: Term life insurance that may be renewed for another term without evidence of insurability, usually with increasing premiums.
Renewal Rate: The new rate of interest credited to an investment after the current interest-rate period is over, typically on the anniversary of the contract. This rate may be higher or lower than the current rate, depending on economic conditions and the investments used by the insurer.
Resulting trust: A trust resulting in law because of the acts of parties regardless of any intent to create a trust. Compare Express trust and Constructive trust.
Retirement Annuities: Individual pension plans or life insurance contracts used to guarantee income.
Retirement Plan Withholding: A 20% withholding for federal income taxes from an annuity distribution to an employee from an employer-sponsored retirement plan.
Reverse Annuity Mortgage: A contract in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender until the homeowner dies or goes into care and the house can be sold to repay the debt.
Resulting trust: A trust resulting in law because of the acts of parties regardless of any intent to create a trust. Compare Express trust and Constructive trust.
Revocable trust: A trust that is created during the lifetime of the grantor and may be amended or revoked by the grantor during the grantor’s lifetime. It will usually be used as the ultimate vehicle for the distribution of the grantor’s assets when the grantor dies. Also known as a "living trust."
Right of representation: See Per stirpes.
Risk-Return Trade-Off: A way of analyzing the risks and returns of a potential investment by considering the age of the investor and the time frame for the investment, with higher risks generating greater returns.
Rollover: Refers to the dollars from a qualified retirement plan or IRA (Individual Retirement Account) that are shifted from one plan to another plan of the same kind, maintaining the tax-deferred status of the funds.
Roth Conversion: The movement of funds from a traditional IRA to a Roth IRA if certain requirements are met, where the taxable amount of the rollover funds will be included in the gross income for the year in which the conversion is made.
Roth IRA: An Individual Retirement Account whose contributions are not deductible. Account distributions may be obtained free of federal income tax if certain conditions are met, however.
Securities: Negotiable instruments representing financial value, often categorized as debt securities and equity securities.
Self-canceling Installment Note (SCIN): An installment note that is cancelled upon the death of the person who made the loan.
Separate Property: In community property states, all property that is not community property.
Settlement Option: Methods by which the insurance company may pay annuity or life insurance policy proceeds to the annuitant, contract owner, policy owner or beneficiary.
Short-term Guardian: A guardian appointed by an acting guardian to take over the acting guardian’s duties each time the acting guardian is unavailable or unable to carry out those duties. Appointment cannot exceed a cumulative 60 days within a 12-month period.
Simplified Employee Pension (SEP): A type of worker retirement plan in which an IRA (Individual Retirement Account) is used to hold contributions; a simpler alternative to a 401(k) or profit-sharing plan.
Single-Employer Plan: A type of worker pension plan that is sponsored by one employer or a group of employers under a common control structure. It may also be a pension program that is not collectively bargained and is sponsored by a group of unrelated firms.
Single Life Annuity: A type of insurance contract in which the periodic payments are made to the annuity contract owner for life, but end after the owner dies.
Single Premium: A type of insurance contract into which funds cannot be deposits after the initial investment. Fixed-rate annuities are commonly of this type, requiring a second annuity purchase should the contract owner decide to invest more money at a future date.
Single Premium Deferred Annuity (SPDA): A type of insurance contract that may be bought into once and whose payouts are withheld, compounding interest. Future investments require a new annuity purchase.
Single Premium Immediate Annuity (SPIA): A type of insurance contract that may be bought into once and yields periodic payouts (monthly, quarterly, or annually) at the cost of compound interest. Future investments require a new annuity purchase.
Source of Funds: The location an individual uses to obtain money to invest such as 401(k) accounts, IRAs, etc.
Special Needs Trust: A trust (other than a trust established with the beneficiary’s own assets) for a beneficiary who may receive state assistance. The trustee may use assets for the beneficiary’s needs beyond what the state will provide, and the state is not entitled to reimbursement at the beneficiary’s death.
Special Power of Appointment: A power to appoint property to anyone other than the appointer or the appointer’s estate or creditors. Usually a defined group such as "descendants and their spouses."
Specific Bequest: A gift by will of a specific amount of money or specific items of tangible or intangible personal property.
Spendthrift Trust: A trust that is not subject to the claims of a beneficiary’s creditors. Generally, the term does not refer to a trust established by a grantor for the benefit of the grantor. See Asset protection trust.
Split-Funded Annuity: An insurance contract in which the plan's owner divides the initial premium into two separate contracts, with one portion of the premium deposit going to a fixed deferred annuity with a guaranteed interest rate over a set period of time, and the other portion going to an immediate annuity that pays income during the same time period.
Sprinkling or Spray Trust: A trust with provisions giving the trustee the discretion to distribute any or all of the income or principal among beneficiaries equally or unequally.
Standby Guardian: A guardian designated by an acting guardian to be appointed as guardian by the court when the acting guardian can no longer act.
Standard & Poor’s Rating (S&P): A letter-grade rating system which studies and rates insurance companies’ financial strengths in part on their ability to meet their contractual obligations to policyholders.
Standard Deviation (3-year): A statistical measure of a sub-account’s range of performance that has a greater chance of fluctuation when an annuities sub-account has a high degree of deviation.
Standard Risk: A calculation that is on a par with those upon which the rate has been based in the areas of health, physical condition and morals.
Standard Termination: The ending of a plan that holds assets sufficient to pay all benefits.
Stock Purchase Agreement: A type of buy-sell agreement, usually funded by life insurance, whereby each stockholder is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obligated to sell.
Stock Redemption Agreement: A type of buy-sell agreement, usually funded by life insurance, whereby the corporation is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obliged to sell.
Straight Life Annuity: A type of insurance contract plan paying a specified amount over a set period of time until the death of the annuitant. There are no payouts available to survivors after the contract owner dies.
Structured Settlement: Also known as a previously issued annuity, is the purchase of part or all of a injured party’s settlement (or annuity payments) in return for a lump sum payment. Companies then sell the payment stream to another investor. This transaction requires the investor to put money down (an escrow) and obtain the approval of the presiding judge and the insurance company.
Sub-Account: Different investment portfolios in which an individual decides where and how much of the annuity funds to invest.
Substandard Health Annuity: A type of straight-life insurance contract designed for individuals who have serious health problems.
Sub-Account: Portion of a variable insurance contract allocating investment into a specific segment, like a money market account, the S&P 500, or mutual funds.
Sub-Account Net Assets: The investments of a sub-account expressed in millions of dollars.
Surrender Charge: A fee imposed by the insurer if the contract owner terminates the annuity prematurely, by withdrawing all funds.
Surrender Penalty: A charge imposed to a deferred annuity account for excessive or multiple withdrawals that exceed the limits imposed by the annuity contract
Surrender Value: The amount of dollars received by a contract owner if the annuity is surrendered and all cash is taken out of it.
Surviving Spouse: The living spouse of a deceased contact or plan participant.
Tangible property: Personal property that can be touched or otherwise perceived by the senses and is not representative of other rights. A table or a chair is tangible personal property. Although a stock certificate is tangible, it is considered intangible because it is representative of other rights (ownership rights in a corporation) that are not tangible.
Tax-Deductible: An amount of an investment deducted from the adjusted gross income of a taxpayer in order to calculate the total of taxable income. Medical expenses, paid mortgage interest, and charitable contributions itemized on Schedule A of federal income forms are examples of tax-deductible expenses.
Tax-Deferral: Earnings from an insurance contract are not taxed until they are withdrawn from the plan.
Tax-Deferred Annuities: An insurance contract for people who want to save on a tax-deferred basis for many years, and then convert to a payout schedule upon retirement.
Tax Incentives: Types of tax benefits received based on investment instruments.
Tax-Free Transfers: An exchange whereby owners of variable annuity contracts may move assets from one sub-account to another without the imposition of tax liability on these funds.
Tax-Sheltered Annuity (TSA): A type of retirement insurance contract available for purchase only by public school teachers and individuals employed by colleges, hospitals and other entities that offer qualified retirement programs under Internal Revenue Code Section 403(b).
Temporary Annuity: A type of life insurance contract that is set to expire after the passing of a pre-established period of time.
Temporary Guardian: A guardian appointed on a temporary basis, usually pending the appointment of a permanent guardian, upon a showing of necessity for the immediate welfare and protection of an alleged disabled person.
Tenancy by the Entirety: A form of joint ownership between spouses that, upon the death of one spouse, results in the immediate transfer of ownership to the surviving spouse.
Tenancy in Common: A form of ownership in which two or more persons own the same property. At the death of a tenant in common, the decedent’s interest passes according to the decedent’s will, or by intestacy if there is no will, not to the other owner (unless the decedent’s will so provides).
Term Certain Annuity: A kind of insurance contract in which predefined income payments are provided until the expiration date of the annuity product. Payments are typically made on a monthly basis for the term of the contract. If the expiry date occurs before the annuitant dies, however, that individual no longer receives a steady income stream.
Terminable Interest: Any interest in property that terminates upon the death of the holder or upon the happening of some other specified event.
Testamentary Capacity: The mental ability to make a valid will.
Testamentary Trust: A trust created by a will that takes effect only after death.
Testate: A term used to describe the estate of an individual who has left a valid will.
Top-Heavy Plan: A worker retirement plan in which employees identified as "key" receive 60 percent or more of the benefits of the plan. Top-heavy plans are subject to additional regulation under the law.
TottenTrust: A trust created by a deposit of money in a bank account in one’s own name as trustee for another. The account creator/trustee owner owns and controls the account without restriction during his or her life. At the death of the trustee, a presumption arises that an absolute trust was created for the beneficiary for the account balance at the death of the trustee. See In re Totten, 179 N.Y. 112, 71 N.E. 748 (1904).
Total Return Trust: A trust that can invest without regard to whether the return is from income or capital appreciation.
Trading: The movement of funds from one sub-account to another within an annuity while maintaining tax deferment.
Transfer: The movement of funds from one financial institution to another financial institution for the benefit on an individual.
Transfer-on-death (TOD) Account: A form of registration for securities that operates in the same fashion as a Totten trust.
Treasuries: All of the federal government's negotiable securities.
Trust: A legal arrangement in which one person (the grantor) transfers legal title of property to another person (the trustee) to manage the property for the benefit of a third person or a charity (the beneficiary).
Trustee: An individual or institution that manages property according to the instructions in the trust agreement.
Two Trust Plan: Another name for a Marital/family trust plan.
Two-Tier Annuity: A type of insurance contract that is designed to have a high interest rate, compared to the market, during its first year, based on the assumption that the owner of the annuity contract will remain in the plan through the annuitization period.
Underlying Portfolios: Investments such as stocks, bonds, cash equivalents or other investments purchased with the money you invest in an annuity.
Underwriter: A person trained in evaluating risks and determining rates and coverage for the individual based on the determined risks.
Undivided Interest: A type of interest held in property in which the property is titled among parties as joint tenants or as tenants in common. No owner has the right to exclusive use or control of any particular piece or fraction of the property; rather, each owner has an equal right with all of the other owners to use and enjoy 100 percent of the property.
Unified Credit: Also known as Applicable credit amount.
Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA): Statutory provisions allowing for transfer of property to a minor with a custodian named to act on behalf of the minor without having to be appointed as the minor’s guardian. UTMA assets are treated as owned by the minor for income and other tax purposes.
Unitrust: A trust that provides for a distribution to an income beneficiary of a percentage of the trust assets based on the value of the assets on an annual valuation date (e.g., the first day of the year).
Unsecured Loan: A debt that is made on the basis of good credit and the borrower's promise to repay the funds. Does not require a borrower to provide collateral in the form of a tangible asset in order to secure the loan.
Valuation Discounts: Discounts from fair market value allowable because of minority interest, lack of control, and/or lack of marketability.
Variable Annuity: A kind of insurance contract that allows the owner to allocate the premium amount among several investments, or sub-accounts. The contract value of such a plan may vary according to the performance of these investments.
Vested Interest: A present, ascertainable, fixed right of possession or enjoyment of property when actual delivery of the property may be postponed until a later date. Compare to Contingent interest.
Vesting: The word used to describe an employee's gaining of the right to be paid a current or future benefit from a pension plan.
Ward: A minor or incapacitated adult whose affairs are being supervised by the probate court.
Waiver of Premium: A part of a life insurance policy which continues coverage without further premium payments upon the insured becoming entirely disabled.
Whole Life Insurance: A contact which is kept for a person’s whole life, building up cash value and is guaranteed, as long as the scheduled premiums are maintained.
Will: A document directing the disposition of an individual’s property that is not operative until death and that can be revoked up to the time of death or until there is a loss of mental capacity to make a valid will.
Withdrawal Charge: A fee imposed by the insurer if the contract owner cashes out part of the annuity prematurely. Withdrawal charges typically phase out according to a schedule, e.g., 10% before 3 year, 5% after 4 years, 0% after 5 years. Withdrawal charges may be waived in the event of death or illness.
Yield: The amount of profit obtained on a capital investment. Also the income portion of the return from a security.