Appendix 1

Definition of Terms Used
Amortization- Reducing the principal by regular payments. This also includes interest payments and other loan costs.
Annual Exclusion- The maximum amount that a donor may give per year per donee free of Federal gift tax. Currently, this amount is $10,000.
Annuity- Under an "annuity" arrangement, a person turns over a given amount of money to a life insurance company. The company invests this money and uses a combination of interest and principal to provide the beneficiary with a guaranteed income.
Assets- Anything owned that has monetary value.
Bear Market- A market that is sharply declining because investors believe that stock prices, or the market as a whole, will fall.
Beneficiary- The person designated to receive the proceeds or benefits accruing under a life insurance policy or an annuity; also the person who is to receive the benefits of the trust estate. A beneficiary can be an individual, a company, an organization, etc.
Bid and Ask- A "bid" price is the highest price that someone is willing to pay for a stock. The "asked" price is the lowest price that someone is willing to sell.
Blue Chip- The best stocks. This ranking is based on the following criteria: Earnings in good times and bad over a long period of time; twenty five years or more of paying quarterly cash dividends; leadership in solid, established industries coupled with solid expectations for continued success.
Bull Market- A market that is sharply advancing because investors believe that stock prices, or the market as a whole, will rise.
Bull-Sell Agreement- A contract providing for the sale of a business interest upon the happening of a specified event such as death, disability or retirement.
Capital Gain- Gain realized through the sale or exchange of a capital asset, property owned for investment, such as securities and real estate.
Cash Surrender Value- Before the maturity of your life insurance policy, or before death, you can cash in the policy and receive an amount of money called the cash surrender value.
Certificate of Deposit- Also CD, a certificate for a Time Deposit in a commercial bank, earning a specified rate of interest over a given period of time.
Common Stock- Securities which represent an ownership interest in a corporation.
Community Property- Property acquired during marriage while living in a community property state (Arizona, California, Nevada, Louisiana, Texas, Idaho, Washington and New Mexico). The interests of the spouse are co-equal.
Conservator- A conservator usually has less power than a guardian. The terms of a conservatorship specify the legal limitations of the conservator. A conservatorship is not evidence of incompetence.
Credit Estate Tax- Many states impose this type of state death tax. The net amount of tax paid is not altered - less tax is simply paid at the Federal level.
Credit Life Insurance- Term life insurance which pays off a loan if the borrower dies. This is sometime required by lenders.
Dividend - The pro rata proportion of net earnings paid to its stockholders by a corporation. In preferred stock, dividends are usually fixed; with common shares, dividends vary with the fortunes of the company.
Durable Power of Attorney - A written document which enables an individual, the "principal", to designate another person or persons as his "attorney-in-fact", that is, to act on the principal's behalf. The scope of the power can be severely limited or quite broad. It is not terminated by subsequent disability or incapacity of the principal.
Estate Tax - A tax imposed on the decedent's net or taxable estate. It is not a tax on what comes to the beneficiaries, but upon what is left by the decedent.
Face Amount - This amount is stated on the face of the policy. This is the amount of a policy that is paid at death or at contract maturity, less any policy loans or withdrawals made.
Fair Market Value - Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.
Government Obligations - Instruments of the U.S. Government public debt. Examples are Treasury bills, notes, bonds, savings bonds and Retirement Plan bonds. These are fully backed by the U.S. Government, as opposed to U.S. Government agency securities.
Group Life Insurance - Employers or unions offer insurance to their employees or members on a group basis, often resulting in lower cost premiums and no medical examination.
Guardian - A guardian may have charge of the person and/or his assets. A guardian has broad, general powers. Guardianship is usually evidence of some type of legal incompetence, e.g.,a minor.
Gift - For gift tax purposes, a gift includes a sale, exchange or other transfer from one person (the donor) to another (the donee) for less than full and adequate "consideration".
Gross Estate - All of the decedent's property which is includable in his estate for estate tax purposes. All property interests - real, personal, tangible, wherever situated, are valued at death.
Inheritance Taxes - Taxes imposed by some states upon the passing of property of a deceased person's estate to the heirs. It is a tax upon the heir's right to receive his share of the estate.
Intestate - To die without a will. If a valid will does not exist at the time of death, probate assets will be distributed according to the state intestacy laws.
Irrevocable Trust - A trust in which the terms cannot be regained by the trustor.
Joint and Survivor - An arrangement under which the owner of the annuity elects to have payments continue to another person for that person's lifetime, after the original annuitant's death.
Joint Tenancy - Co-ownership which refers to a jointly-held property. While all joint tenants are alive, each one has an undivided interest in the whole property. When one joint tenant dies, his or her interest passes to the surviving joint tenant or tenants. The last surviving joint tenant obtains the entire joint property.
KEOGH Plan - A form of tax-qualified retirement plan established by an unincorporated business or self-employed individual. Investment contributions and appreciation are generally tax-deferred until received in the form of benefits.
Level Premium Insurance - A type of insurance where the yearly premium is the same over the life of the policy.
Life Estate - The right to use and enjoy property and to receive the rents/ profits during one's lifetime. A life tenant has no right to dispose of the property or do any act which might reduce the value of the property for those ultimately receiving it.
Medicare Terms:
1-Actual Charge: the real amount the medical providers charge
2-Approved amount: the Medicare "reasonable" limit they will pay for covered charges.
3-Assignment: the medical provider accepts the Medicare payment as payment in full.
4- Deductible: for covered services, the first dollars are paid by the patient ($100 per year as Part B deductible, for example).
5-Excess Charge: the medical provider may charge up to 125% of the approved amount. The patient is liable for the rest.
Mortgage - A written pledge by the borrower to the lender that transfers valuable property to the lender if the borrower defaults.
Municipal Bonds - The obligations of states, cities, towns, school districts and public authorities are known as municipal bonds. There are two principal types: general obligation bonds and revenue bonds.
Mutual Fund - A mutual fund pools the dollars of many people, and undertakes to invest those dollars.
Nonprobate Assets - All property which passes outside the will. An example of such property is life insurance proceeds paid to a designated beneficiary who survives the decedent.
Pension - Regular income paid to a worker after retirement. In many instances, survivors receive this income after death.
Permanent (Whole Life) Insurance - Any type of life insurance, other than term, with the following characteristics: a cash value that can be borrowed, used as collateral or withdrawn by surrendering the policy; and a lump sum benefit payable at death.
Personal property - Generally, any property other than real estate.
Portfolio - All assets held by a mutual fund at any specific time, and thus, held by the shareholders.
Power of Attorney - The ability to direct the disposition of assets of another, given by that other person.
Preferred Stock - A class of stock with a claim on the company's earnings before payments may be made on the common stock if the company liquidated or declares a dividend.
Principal - The amount of money that is financed or borrowed.
Probate - Literally, the process of proving to the court that the written will of the deceased is valid.
Probate Assets - Those assets which will be transferred under the terms of the estate owner's will or which are subject to state intestacy law if there is no will.
Remainder Interest - Property interest existing when there is someone with a life estate. Remainder interest is the right to receive ownership of the entire property at death of the life tenant.
Revocable Trust - A trust in which the terms can be altered or amended and assets transferred to the trust can be regained by the trustor.
Stepped-up Basis - Assets which are included in the estate at death receive an increase in basis to their fair market value at the time of death. Recipients receive the assets with the higher basis and appreciation escapes income tax.
Stock Option - A company provides the opportunity for key employees to buy stock in the company at favorable prices and terms.
Tax-Exempt - Income not subject to income tax. Included for most American taxpayers are income from most state and municipal bonds, social security payments, workmen's compensation, gifts and dividends up to specified sums and veteran's pensions.
Tax-Exempt Bonds - The Securities of states, cities and other public authorities specified under Federal law, the interest on which is either wholly or partially exempt from Federal income taxes. Municipal bonds are often called tax-exempts.
Tax-Exempt Interest - Interest earned on tax-exempt securities is not includable in a shareholder's gross income for Federal Income tax purposes. In most states, the income from municipal bonds issued within a state is tax-exempt to residents of that state.
Tax-Shelter - A device where a taxpayer may reinvest earnings on capital without paying current income tax on them. Examples: Company and individual pension plans (contributions on these are not considered income until they are paid out).
Tenancy in Common - A form of co-ownership. Upon the death of a co-owner, his or her interest passes to his or her estate, and not to the surviving owner or owners.
Term Life Insurance - This type of insurance covers a limited, specific period of time. In the event of death, benefits will be paid only if death occurs during the period the policy is in force.
Treasury Bond - A U.S. Government long term security, sold to the public and having a maturity greater than five years.
Treasury Stock - A stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired. Treasury stock receives no dividends and has no vote while held by the company.
Trust - A legal arrangement by which title to property is given to one party (trustee) who manages it for the benefit of a beneficiary or beneficiaries.
Trustee - An individual or corporation appointed or required by law to administer or execute the trust for the beneficiaries of the trust.
Unified Credit - A credit which can be used to offset either Federal gift tax or Federal estate tax. The credit amount is
$192,800 after 1987.
Valuation Date - For Federal estate tax purposes, assets are valued at their fair market value at the time of death. The executor may elect an alternate valuation date which is six months after the date of death for assets retained, and the date of sale, exchange or disposition if assets are sold, exchanged or distributed within six months of death.
Will - Is a legal declaration of a person's wishes concerning the disposition of his property after his death, the guardianship of his children, and the administration of his estate.
Yield - Also known as return. The dividends or interest paid by a company, expressed as a percentage of the current price--or, if you own the security, of the price you originally paid. The return on a stock is figured by dividing the total of dividends paid in the preceding 12 months by the current market price--or, if you are the owner, the price you originally paid.