ASSETS Acceptable in Trusts - PowerPoint Presentation

ASSETS Acceptable in Trusts

Cash and Cash Equivalents Definition: “Investment securities that are short-term, have high credit quality and are highly liquid ” Cash equivalents include : U.S. government Treasury bills bank certificates of deposit bankers ' acceptances corporate commercial paper other money m arket instruments.

U.S . Government Treasury bills A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks). United States Government Debt?

For example, let's say you buy a 13-week T-bill priced at $9,800. Essentially, the U.S. government (and its nearly bulletproof credit rating) writes you an IOU for $10,000 that it agrees to pay back in three months. You will not receive regular payments as you would with a coupon bond. Instead, the appreciation value to you comes from the difference between the discounted value you originally paid and the amount you receive back ($10,000). In this case, the T-bill pays a 2.04% interest rate ($200/$9,800 = 2.04%) over a three-month period.

Bank Certificates of Deposit A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.

A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. For example, let's say that you purchase a $10,000 CD with an interest rate of 5% (today’s rate - lol ) compounded annually and a term of one year. At year's end, the CD will have grown to $10,500 ($10,000 *1.05 ). CDs of less than $100,000 are called "small CDs"; CDs for $ 100,000 or more are called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some small CDs, are negotiable.

Banker’s Acceptance A short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds . Banker's acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity. Banker's acceptances are regularly used financial instruments in international trade.

Banker's acceptances vary in amount, according to the size of the commercial transaction. The date of maturity typically ranges between 30 and 180 days from the date of issue. However, banks or investors often trade the instruments on the secondary market before the acceptances reach maturity. Banker's acceptances are considered to be relatively safe investments, since the bank and the borrower are liable for the amount that is due when the instrument matures.

Commercial Paper An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.

Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC ) as long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.

Other Money M arket Instruments Community Credit Unions Member-owned financial co-operative. These institutions are created and operated by its members and profits are shared amongst the owners. As soon as you deposit funds into a credit union account, you become a partial owner and participate in the union's profitability. Credit unions are formed by large corporations and organizations for their employees and members.

Revolving Funds is a fund or account that remains available to finance an organization's continuing operations without any fiscal year limitation , because the organization replenishes the fund by repaying money used from the account. Revolving funds have been used to support both government and non-profit operations . There are several situations in which such funds would be particularly helpful. One example would be funding sources for historic preservation projects. A non-profit preservation organization would establish a fund to receive donations and other capital which is used by the organization to purchase endangered property. Some organizations also make loans for new construction or building renovations, which then replenish the revolving funds as those loans are repaid.

Personal Effects Household Goods clothes – shoes – luggage pictures – plants - dinner ware – silverware – plants – toys – yard tools – lawn mower – furniture – scooter appliances – bicycles – kayak – antiques – laptop computer – iPod –car/truck Food in pantry – lawn care products - livestock

Securities Stocks Preferred – Common – Closely Held Bonds Commercial – State Government – Municipal United States Saving Bonds Notes Receivable

Stocks A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock : common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends.

Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated. Also known as "shares" or "equity."

A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.

Definition of Bonds A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries." Two features of a bond - credit quality and duration - are the principal determinants of a bond's interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.

Definition of US Saving Bonds A U.S. government savings bond that offers a fixed rate of interest over a fixed period of time. Many people find these bonds attractive because they are not subject to state or local income taxes. These bonds cannot be easily transferred and are non-negotiable . U.S. savings bonds are one of the safest types of investments because they are endorsed by the federal government and, therefore, are virtually risk free. Although these bonds do not earn much interest compared to the stock market, they do offer a less volatile source of income.

What are Notes Receivable An asset representing the right to receive the principal amount contained in a written promissory note. Principal that is to be received within one year of the balance sheet date is reported as a current asset. Any portion of the notes receivable that is not due within one year of the balance sheet date is reported as a long term asset.

Retirement Plans The process of determining retirement income goals and the actions and decisions necessary to achieve those goals . Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing assets . Future cash flows are estimated to determine if the retirement income goal will be achieved.

In the simplest sense , retirement planning is the planning one does to be prepared for life after paid work ends, not just financially but in all aspects of life . The non-financial aspects include such lifestyle choices as how to spend time in retirement, where to live, when to completely quit working, etc. A holistic approach to retirement planning considers all of these areas.

The emphasis one puts on retirement planning changes throughout different life stages. Early in a person's working life, retirement planning is about setting aside enough money for retirement. During the middle of an individual's career, it might also include setting specific income or asset targets and taking the steps to achieve them. In the few years leading up to retirement, financial assets are more or less determined, and so the emphasis changes to non-financial, lifestyle aspects.

Types of Retirement Plans Individual Retirement Arrangements (IRAs ) Roth IRAs 401(k) Plans 403(b) Plans SIMPLE IRA Plans (Savings Incentive Match Plans for Employees) SEP Plans (Simplified Employee Pension) SARSEP Plans (Salary Reduction Simplified Employee Pension) Payroll Deduction IRAs

Profit-Sharing Plans Defined Benefit Plans Money Purchase Plans Employee Stock Ownership Plans (ESOPs) Governmental Plans 457 Plans 409A Nonqualified Deferred Compensation Plans

Life Insurance Life insurance is a contract between an insured (insurance policy holder) and an Insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. The policy holder typically pays a premium, either regularly or as a lump sum.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.

Life-based contracts tend to fall into two major categories: Protection policies – designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. Investment policies – where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies .

Business Interest Sole Proprietorships Partnership Buy/Sell Agreement(s) Corporation C Corporation S Corporation Professional Association LLP – Limited Liability Profession

Sole Proprietorships The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners . Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary. Sole proprietorship is also known as "proprietorship".

There is no separate legal entity created by a sole proprietorship, unlike corporations and limited partnerships. Consequently , the sole proprietor is not safe from liabilities incurred by the entity. The debts of the sole proprietorship are also the debts of the owner. However, all profits flow directly to the owner of a sole proprietorship.

The benefit of the sole proprietorship is the tax advantage. The disadvantage of a sole proprietorship is obtaining capital funding, specifically through established channels, such as equity (selling shares) and obtaining bank loans or lines of credit . As a business grows it often transitions to a limited liability company (LLC) or S corporation.

Partnerships A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business . Partnership doesn't always mean two people. There are many large partnerships who have thousands of partners.

Corporations A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.

The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts. Corporations are often called " C Corporations ."

A corporation is created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock. Shareholders elect a board of directors (generally receiving one vote per share) who appoint and oversee management of the corporation. Although a corporation does not necessarily have to be for profit, the vast majority of corporations are setup with the goal of providing a return for its shareholders. When you purchase stock you are becoming part owner in a corporation.

S Corporation Definition of 'Subchapter S (S Corporation)' A form of corporation that meets the IRS requirements to be taxed under Subchapter S of the Internal Revenue Code. This gives a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. This means that any profits earned by the corporation are not taxed at the corporate level, but rather at the level of the shareholders. Also known as "S corporation ".

Having S corporation status can prove a huge benefit for a corporation. The corporation can pass income directly to shareholders and avoid the double taxation that is inherent with the dividends of public companies, while still enjoying the advantages of the corporate structure. In order to qualify, a corporation must be a small business corporation. This means the following requirements must be met: 1) Must be a domestic corporation , 2) Must not have more than 100 shareholders, 3) Must include only eligible shareholders, 4) Must have only one class of stock .

Professional Association A professional corporation (PC) formed with the intention of engages in one of the learned professions, as the law, as medicine, or as the architecture. Traditionally, the professional corporations (PC) were forbidden of engages in such professions because they lacked the human, the necessary personal qualifications to follow them. In the recent years nevertheless most of the states promulgated a professional corporation (PC) or an association act that allows the professional persons to practice in the form of business provided that all shareholders are members of the profession.

LLP – Limited Liability Profession In a limited liability partnership, the partners enjoy some protection against personal liability. Each partner must be a person licensed under state laws to engage in the practice of public accountancy, law or architecture. The LLP is not a separate entity for income tax purposes; profits and losses are passed through to the partners.

Like a general partnership, all partners have equal rights in the management of an LLP unless otherwise agreed. Partnerships are quite flexible; a great variety of control and management structures are available by agreement. Each partner is responsible for liabilities imposed by law arising out of his or her own acts and omissions. In addition, each partner is responsible for debts and liabilities as defined in the LLP agreement.

Buy/Sell Agreement An approach used by sole proprietorships, partnerships and closed corporations to divide the business share or interest of a proprietor, partner, or shareholder. The owner of the business interest being considered has to be disabled, deceased, retired or expressed interest in selling. The buy and sell agreement requires that the business share is sold according to a predetermined formula to the company or the remaining members of the business. Before the interest of a deceased partner can be sold to the company or remaining partners, the deceased's estate must agree to sell.

It is important to note that when a sole proprietor dies, since he/she has no partners, a key employee is the buyer or successor.

Assets that are Generally Unacceptable Trust Assets Motor Vehicles – Autos, motor cycles, boats, mobile homes travel trailers Household Furnishings and Supplies -however in some jurisdictions household goods may be assigned to the trust Business Inventory Personal Effects Livestock

Assets that are Generally Unacceptable Trust Assets Equipment Purchase Contracts Partnership Agreements Assets unacceptable under the standards of the church

Questions