Ch 8 - Sophisticated Methods Of Charitable Giving

Question 0

• undivided portion of a donor’s entire interest
• remainder interest in personal residence or farm
• charitable remainder trust
• pooled-income fund
• charitable lead trust
• qualified conservation easement

Answer 0

What are the special categories for Donating Less Than Entire Interest?

Question 1

•No charitable deductions are allowed unless the transaction falls into one of the following special categories:

• •undivided portion of a donor’s entire interest
• •remainder interest in personal residence or farm
• •charitable remainder trust
• •pooled-income fund
• •charitable lead trust
• •qualified conservation easement

Answer 1

What is the impact of Donating Less Than Entire Interest?

Question 2

• if the transfer consists of anything less than this “undivided portion of the donor’s entire interest” there will be no deduction allowed
• includes undivided interest as joint tenants

Answer 2

What is the Undivided Portion of Entire Interest

Question 3

• includes primary and secondary homes
• deductible portion does not include tangible personal property
• works well if donor will not need property after retained interest expires
• valuation is determined under Section 7520, except that charitable remainder is required by IRS to be reduced by depreciation factor
• Retained life estate is in Donor’s gross estate, but the estate gets the estate tax charitable deduction

Answer 3

What is the Remainder Interest in Personal Residence/Farm

Question 4

•gifts of a remainder interest in trust are deductible only if the trust is a

• •Charitable Remainder Annuity Trust (CRAT)
• •Charitable Remainder Unitrust (CRUT)
• •Pooled Income Fund (PIF)

•Valuation rules are mandated by Secs. 664 and 7520

Answer 4

What are Split Interest Charitable Arrangements

Question 5

• Annuity or unitrust interest for life or lifetimes of the individual beneficiaries
• Annuity or unitrust interest for individual beneficiaries for a period not to exceed 20 years

Answer 5

What is the Duration of CRTs

Question 6

• CRTs must make annual distributions to one or more individual beneficiaries
• CRATs distribute a fixed amount, not less than 5% and not more than 50% of the initial trust principal
• CRUTs distribute a fixed percentage of the assets of the trust, valued annually

Answer 6

What are the CRT rules regarding Individual Interests Are Not Deductible

Question 7

Look up

Answer 7

Charitable Remainder Annuity Trust (CRAT)

Question 8

• Fixed annuity or percentage (at least 5%, but not more than 50%) of the initial amount of donated principal
• Term (not to exceed 20 years) or measuring lives
• No additional contributions
• Inflexible, but advantageous if interest rates are high
• Deduction will be denied if charitable remainder less than 10%

Answer 8

What are the characteristics of a Charitable Remainder Annuity Trusts (CRATs)

Question 9

Look up

Answer 9

Charitable Remainder Unitrust (CRUT)

Question 10

• Stated percentage (at least 5%, but not more than 50%) of annual value of principal
• Term (not to exceed 20 years) or measuring lives
• Additional contributions are permitted
• Flexible, but difficulty with hard-to-value assets
• Tax deduction will be denied if charitable remainder is less than 10%

Answer 10

What are the characteristics of a Charitable Remainder Unitrusts (CRUTs)

Question 11

• if there are multiple beneficiaries, CRT can provide for noncharitable benefits to be reduced if one of those beneficiaries dies
• a proportionate amount of the principal must be accelerated to the charitable remainder beneficiary
• the reduction must be pro rata with respect to the remaining noncharitable beneficiaries
• the trust must continue to meet the 10% test

Answer 11

What are the benefits of Payout Flexibility in a CRT?

Question 12

• a CRUT with a net income makeup provision
• payout limited to the lesser of stated unitrust payout percentage or net income earned by the trust
• protects the remainder beneficiary against invasion of principal
• noncharitable beneficiaries have less valuable interest

Answer 12

What is a NIMCRUTs

Question 13

• CRT is tax exempt entity
• distributions to beneficiaries reflect the tax character of the CRT’s investments, using the tier system of Sec. 664(d)
• ordinary income
• capital gains
• amounts excluded from gross income
• principal

Answer 13

How are Annuity & Unitrust Payments taxed?

Question 14

•Tax Exempt Investments

• •limits taxable income distributed to beneficiaries
• Deferred Annuities
• Closely Held Stock
• Life Insurance
• •provides significant leverage for the charity

Answer 14

How is the Principal of a CRT Invested?

Question 15

• CRTs and Wealth Replacement Trusts
• CRTs as supplement to a Retirement Plan
• Transferring a Closely Held Corporation through a CRT

Answer 15

How are CRTs used in Estate Planning Applications?

Question 16

• usually structured as an ILIT
• replaces the trust principal ultimately distributed to charity
• funding comes from the tax benefits provided by charitable deductions, and the increase income the donor receives from the CRT

Answer 16

What is a Wealth Replacement Trusts (WRTs)

Question 17

• donor retains benefit from CRT for life
• donor receives estate, gift and income tax deductions
• charity gets substantial contribution
• donor and heirs do not forgo value of the donation
• donor avoids capital gains tax on contribution of appreciated property to the CRT

Answer 17

What are the Benefits of Using CRTs with WRTs

Question 18

• operated or controlled by a charitable organization
• composed of assets of many donors commingled to form one investment pool
• payments to income beneficiary are based on units of participation
• PIFs are prohibited from investing in tax-exempts

Answer 18

What is a Pooled Income Fund

Question 19

• Irrevocable trust is funded
• Annuity or unitrust (of any size) is provided to charitable organization(s) for any term of years or measuring lifetime of immediate family member
• Trust terminates and property passes to remainder beneficiaries (probably family of the donor)

Answer 19

What is a Charitable Lead Trust

Question 20

• current income tax deduction is available
• must be designed as grantor trust
• all income is taxed to grantor after creation of trust
• if property reverts to donor, no estate tax benefit results
• remainder interest passing to noncharitable beneficiary is a taxable gift

Answer 20

What is a Inter Vivos Charitable Lead Trusts

Question 21

• used to reduce estate tax burden
• Jacquelyn Kennedy Onassis
• estate tax charitable deduction totaled 96.8% of the residuary estate

Answer 21

What is a Testamentary Charitable Lead Trust

Question 22

• donor obtains significant conservation objective
• donor retains important property right
• donor receives a deduction

Answer 22

What are Qualified Conservation Donations

Question 23

• entire interest in property except for retained mineral rights
• gift of remainder interest in real estate
• agree to perpetually restrict use of property for conservation purposes

Answer 23

What are the Types of Conservation Donations

Question 24

• must be made to an eligible charitable organization
• governmental units
• publicly funded charities
• subtraction method of valuation is generally used (i.e., the donation deduction is equal to the FMV less the value of the property as restricted)
• IRS will not give advance ruling on value and it may be very difficult to value in any given fact pattern

Answer 24

What are the Tax Deduction Requirements