Glossary

501(c)(3)

Section of the Internal Revenue Code that designates an organization as charitable and tax-exempt. Organizations qualifying under this section include religious, educational, or cultural groups, organizations advancing public safety or organizations involved in prevention of cruelty to children or animals. (top)

509(a)(1), (2), and (3)

Section of the Internal Revenue Code that defines public charities (as opposed to private foundations). A nonprofit 501(c)(3) organization must also have a 509(a)(1), (2), or (3) designation in order to be defined as a public charity. (top)

Adjusted Gross Income

The adjusted gross income is the level of income on which federal income tax is assessed, before any deductions and personal exemptions are made. This amount may be used for computing limitations on certain deductions, such as those for charitable gifts. (top)

Bequest

Transfer of personal property to a specified person or organization under the terms of the decedent’s will. (top)

Capital Gains Tax

A tax that may be assessed on any profit realized from the sale of appreciated capital assets. A capital gain is the difference between the net sales price of the asset and its cost basis. Assets sold by charities, including donor-advised funds, avoid capital gains tax. (top)

Charitable Lead Trust (CLT)

This type of estate planning arrangement allows for a regular, fixed amount to go to a charity for a for a specified period, after which, the remainder of the trust passes to one or more persons designated by the donor. The donor is entitled to a charitable contribution deduction for the portion of the property given to the charity. (top)

Charitable Remainder Trust (CRT)

This type of estate planning arrangement is an irrevocable trust that creates two interests. The first is an income interest for the donor and/or one or more individuals designated by the donor for life or for a specified term. The second interest is a remainder interest in the trust assets that a charitable organization receives after the income interest ends. The donor receives a charitable contribution deduction for the present value of the remainder interest. Also, the trust itself is exempt from income tax. The two main types of CRTs are:

Charitable Remainder Annuity Trusts (CRATs)
CRATs pay out a fixed dollar payment to income beneficiaries based on the initial value of the assets donated to the trust. This fixed payment cannot be changed, and no additional contributions are allowed. CRATs are most appropriate for conservative donors who desire absolute certainty in their income payments.

Charitable Remainder Unitrusts (CRUTs)
CRUTs pay out a fixed percentage (variable dollar) to income beneficiaries based on an annual valuation of the trust. Donors can make additional contributions to the trust over time. They are most appropriate for donors who can tolerate income fluctuations and want to participate in any growth in the value of the trust. (top)

Community Foundation

A community foundation is a fund established to support charitable organizations in a specified geographic area or community and is classified as a public charity. A typical community foundation is a vehicle for attracting contributions from many donors. (top)

Donor

A donor is an individual or entity making a contribution to a private foundation, public charity, or charitable trust. (top)

Donor-Advised Fund

A donor-advised fund is generally a public charity (or part of a public charity) that holds contributions from donors as separate accounts Donors can establish an account in a donor-advised fund by making a contribution to the fund. The contribution is irrevocable and is eligible for an immediate tax deduction. Although the donor no longer controls the funds once contributed, they can recommend grants to other charitable organizations, and in the case of Schwab Charitable Fund, how their contributions are invested. Such recommendations are non-binding and advisory. (top)

EIN

The Employer Identification Number is a number assigned by the Internal Revenue Service to any nonprofit or for profit entity. (top)

Estate

Generally, all the property an individual owns or controls at death, including retirement assets and life insurance. The term is also used to refer to the taxable entity that is created upon an individual’s death. (top)

Estate taxes

Taxes that may be assessed on your estate when it transfers to non-charitable beneficiaries. (top)

Excise Tax (I.R.C. Section 4940)

The excise tax in IRC Section 4940 is a tax on the net investment income of private foundations. Normally set at two percent per year, the rate may be reduced to one percent if the foundation meets certain expenditure requirements. (top)

Family Foundation

“Family foundation” is not a true legal term, but rather describes an independent private foundation whose funds are derived from members of a single family. Family members often serve as officers or board members of family foundations and have a significant role in their grantmaking decisions. (top)

Financial Report

An accounting statement detailing financial data, including income from all sources, expenses, assets and liabilities, which is typically included in a charity’s or private foundation’s annual report. A financial report may also be an itemized accounting that shows how grant funds were used by a charitable organization. (top)

Flip Charitable Remainder Unitrust (FLIPCRUT)

A type of Charitable Remainder Unitrust that enables the trust to ÒflipÓ from having a net income option into a standard income provision. (For more information, see Charitable Remainder Unitrust [link to CRUT] and Net Income Charitable Remainder Unitrust. (top)

Form 990

The information return that most public charities are required by law to submit annually to the IRS. The IRS uses this form to assess compliance with tax laws. Form 990 provides information about the organization’s activities, assets, receipts, expenditures, and compensation of directors, officers, and certain employees. Form 990 is available to the public from both the IRS and the filing organization. (top)

Form 990-PF

The information return that all private foundations are required by law to submit annually to the IRS. The form discloses, among other things, information on the foundation’s assets, income, excise tax computations, names and compensation of officers, trustees or directors, and a list of grant recipients. The IRS uses this form to assess compliance with the Internal Revenue Code. Form 990-PF is available to the public from both the IRS and the filing organization. (top)

Grant

As used by Schwab Charitable Fund, this term refers to an award of funds to a public charity or private operating foundation. (top)

Net Income Charitable Remainder Unitrusts (NICRUTs or NIMCRUTs)

A type of Charitable Remainder Unitrust that allows donors to defer income payments until a future date or trigger event. (For more information, see Charitable Remainder Unitrust. (top)

Operating Foundation

Also called private operating foundations, these entities are classified as private foundations, but are treated like public charities for purposes of the limitations on charitable contribution deductions and some of the private foundation excise tax rules. Rather than functioning solely as grantmaking organizations, operating foundations use the bulk of their income to provide direct charitable services or to run charitable programs of their own. To qualify as an operating foundation, specific rules, in addition to the many of the applicable rules for private foundations, must be followed. (top)

Operating Support

A contribution given to cover an organization's day-to-day, ongoing expenses, such as salaries, utilities, office supplies, etc. (top)

Payout Requirement

The minimum amount that private foundations are required to expend for charitable purposes (including grants and, within certain limits, the administrative costs of making grants). In general, a private foundation must meet or exceed an annual payout requirement of five percent of the average market value of its total assets. (top)

Planning Grant

Planning grants are used by organizations planning major new programs. It enables an organization to research the needs of the constituency being served, consult with experts in the field or conduct other planning activities. A common planning assignment is to support initial project development work. (top)

Pledge

A written or oral agreement to make future contributions of cash or other assets. The enforceability of pledges depends on state law, however, judicial decisions traditionally have leaned to toward the enforcement of written pledges. (top)

Private Foundation

A Private Foundation is a nonprofit organization that typically is established and supported primarily by one individual, family, or entity. A private non-operating foundation fulfills its exempt purposes by making grants to support charitable programs conducted by other organizations. A private operating foundation conducts its own programs, expending funds directly for charitable activities. Private foundations are subject to a variety of excise taxes and restrictions on their activities that are not applicable to public charities. In addition, contributions to private non-operating foundations are subject to less favorable deductibility rules than contributions to public charities. (top)

Probate

The legal process wherein the estate of a decedent is administered. The probate process includes collecting a decedent’s assets, paying taxes and debts, and distributing property to beneficiaries. (top)

Program or Project Support Grant

A project grant is given to a specific, defined set of activities, with explicit objectives and (generally) a predetermined cost. When a donor gives a grant for a specific project, it is generally a restricted gift and must be used for that project. (top)

Public Charity

A nonprofit organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and that typically receives its financial support from a broad segment of the general public. Certain religious, educational and medical institutions are deemed to be public charities. Other organizations exempt under Section 501(c)(3) must meet a public support test to be considered public charities, or must be formed to benefit an organization that is a public charity (see Supporting Organization). Charitable organizations that are not public charities are private foundations and are subject to more stringent regulatory requirements (see Private Foundation). (top)

Grantee (Recipient)

As used by Schwab Charitable Fund, this terms refers to a nonprofit organization which receives a grant. (top)

Restricted Funds

Assets of an organization that are restricted to use for a specific purpose. (top)

Security

A general term that refers primarily to stock, stock rights, bonds, debentures, notes or certificates issued by a corporation or government entity. (top)

Seed Money or Start-up Grant

A grant or contribution to help a new organization or a program during its first few years. The idea is to give the new effort a strong financial start so it can devote its energy to initiating its charitable programs without worrying about constant fundraising. Such grants are often for more than one year, and frequently decrease in amount each year. For example, a grant might be $25,000 in the first year, $15,000 the second year and $7,000 the last year. The donor usually assumes that the new organization will gradually begin to raise other funds to replace the start-up grant. (top)

Self-Dealing

A private foundation is generally prohibited from entering into any financial transaction with certain “disqualified persons” (such as trustees, directors, officers, and substantial contributors). The few exceptions to this rule include paying reasonable compensation to a disqualified person for services that are necessary to fulfilling the foundation's charitable purposes. Violations will result in an initial penalty tax equal to ten percent of the amount involved. (top)

Standard Charitable Remainder Unitrust (SCRUT)

See Charitable Remainder Unitrust (top)

Successor Advisor

As used by Schwab Charitable Fund, the term “successor advisor” refers to an individual named by the donor to take over as donor advisor (“nominator”) in the event of the donor's resignation, incapacity, or death. A successor advisor has no authority over the fund until the donor is removed from the account, at which time the successor advisor takes on all the responsibilities of the donor, with the ability to recommend grants, and name nominators and successor advisors. (top)

Supporting Organization

A supporting organization is a tax-exempt entity that is classified as a public charity but is not required to meet the public support test because it supports a public charity. (top)

Tax-Exempt Organizations

Organizations that do not have to pay federal income taxes. Organizations other than certain religious organizations seeking recognition of their status as a tax-exempt organization described in Section 501(c)(3) of the Internal Revenue Code must apply to the Internal Revenue Service. Tax-exempt organizations may also be exempt from state income, sales, and property taxes. (top)

Tithing

A practice of giving a specific portion (traditionally 10%) of one’s income for charitable or religious purposes. (top)

Trust

A legal entity used to set aside property of one person or institution for the benefit of one or more persons or organizations. A trust accumulates and distributes income and principal from the transferred property as directed by the trust. The trust must file an income tax return and may be required to pay tax on any undistributed income. (top)

Unrestricted Funds

Assets of an organization that are not specifically designated to particular use or for which restrictions have expired or been removed. (top)