Glossary of Terms beginning with P

For a charitable gift to be tax deductible, normally the entire interest in the property must be gifted. But partial interest gifts may be donated, and can include such things as:
1. Contribution of a remainder interest in a personal residence or farm.
2. Contribution of an undivided portion of the entire interest in the property.
3. A qualified conservation contribution or conservation easement.
4. Contribution of contract rights, mineral rights, leases or other property rights.

A management strategy that seeks to match the return of an index by mirroring its composition.

"Permanently restricted" net assets are those resources whose principal may never be spent, mainly endowment funds. A donor may place a restriction on a planned gift that specifically limits the eventual use of the remainder interest to a certain cause.

A rule against the tying up of property, as by prohibiting its alienation (or in trust) for longer than a given time, usually lives in being plus 21 years. This rule generally does not apply to gifts in trust for the sole benefit of charities.

Think of this as things that can be touched or things that are tangible.

IRS regulations define a ‘personal residence’ as any property used by the taxpayer as a personal residence even though it is not used as the principal residence. 

Qualified Personal Residence - principal residence, vacation home, condominium, mobile home, boat that contains sleeping space, toilet, and cooking facilities.

See “Keogh Plan” - A tax-deferred qualified retirement plan for self-employed individuals and unincorporated businesses. Also called self-employed pension plan.

A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes; in some cases employers will match that contribution. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program. See also “Qualified Retirement Plan”.

An amount of money a person promises to give to a charitable organization over a specified period of time. Is a legal obligation that may be binding on the estate.

Acronym of Private Letter Ruling – A response issued by the IRS regarding the tax consequences of a proposed transaction or arrangement by the taxpayer or organization that requested the ruling. A PLR only applies to the taxpayer or organization to which it was issued.

These have fallen out of favor and are very seldom used today. A PIF is an arrangement in which a donor irrevocably transfers assets (usually cash) to a trustee. The assets are commingled and invested in a “pooled” fund with other donors’ gifts (not unlike a mutual fund). The donor or his or her beneficiary receives a pro rata portion of the total income from the fund annually. When the donor dies, the remainder interest in the fund attributable to his or her income interest is conveyed to the charity.

A document reflecting the delegation by a principal to an agent, called an attorney-in-fact, of authority to act on the principal’s behalf, particularly with respect to legal and financial matters. Generally a medical power of attorney is a separate document.

Power granted to a beneficiary of a will or trust that permits the beneficiary to determine the ultimate disposition of the property subject to the power of appointment. Powers of appointment may be general or limited, each of which has different estate tax consequences to the power holder.

Ownership positions in companies that provide a predetermined income stream that is payable before equity dividends; should be classified as bonds.

The value today of a future payment, or stream of payments, discounted at some appropriate compound interest or discount rate. For example, the present value of $100 to be received 10 years from now is about $38.55 using a discount rate equal to 10% interest compounded annually.

A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as: Market Value per Share/Earnings per Share (EPS)           
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
Things to Remember
•    Generally a high P/E ratio means that investors are anticipating higher growth in the future.
•    The average market P/E ratio is 20-25 times earnings.
•    The P/E ratio can use estimated earnings to get the forward looking P/E ratio.
•    Companies that are losing money do not have a P/E ratio.

The income-producing portion of a fund, estate, or trust. Also frequently referred to as the corpus.

Frequently referred to as a Family Foundation. A charitable trust or corporation created by a donor, either during the donor’s life or at death, the purpose of which is to make grants to other charitable organizations. It is an independent charity established, controlled and maintained over time by the donor under the direction of the board of directors, which may include the donor. Private foundations offer substantial flexibility: they can be established for virtually any charitable purpose. But, for some donors the private foundation has significant drawbacks, such as: more limited tax benefits than gifts to public charities, stringent reporting requirements, tax returns are public record, and administrative costs are sizable. Someone establishing a private foundation with less than $5,000.000 should instead consider a Donor Advised Fund.

A Private Letter Ruling (PLR) is a response issued by the IRS regarding the tax consequences of a proposed transaction or arrangement by the taxpayer or organization that requested the ruling. A PLR only applies to the taxpayer or organization to which it was issued.

Includes ownership positions in land and buildings as well as private operating companies. May also include equity-like investments in mortgages or land leases that include substantial participation in revenues and capital appreciation. Does not include equity mortgages such as collateralized mortgage obligations (CMO’s), mortgage-backed securities, publicly traded REIT’s or other public real estate.

The court-supervised process of proving that a will is genuine and distributing the property of a decedent’s estate in the manner specified in the decedent’s will. Typically costs the estate 3% to 5% depending upon the complexity of the estate.

Stocks, bonds, and other securities that are traded on a public exchange, such as NASDAQ, the New York Stock Exchange, or the American Stock Exchange.