Chapter 15 - The Charitable Deduction

Question 1

The unlimited charitable deduction

Answer 1

Full unlimited deduction for charitable gifts

Question 2

Charitable deductions are denied if?

Answer 2

1) Any part of the charities net earnings goes to the benefit of private stockholders/individuals
2) A substantial part of the charities activities involves preparation of propaganda or other methods to influence legislation
3) If the charity engages in any political campaign on behalf of the donor
4) At the time of donors death the gift is contingent on the happening of an event, unless the contingency is so unlikely is negligible.
5) If the charitable recipient can use the donation for non-charitable purpose.

Question 3

Split Interest Arrangement

Answer 3

A split-interest gift is any gift in which a portion is assigned to charity and a portion benefits the donor or his/her designee. Charitable gift annuities, pooled income funds, and charitable remainder trusts are all varieties of split-interest gifts.

Question 4

CRAT - Charitable Remainder Annuity Trust

Answer 4

• Fixed annuity payments to the non-charitable beneficiary.
• Remainder of the value after the beneficiary dies or a specified time frame is left to a charity.
• Federal gift and income tax deductions for value of remainder interest
• Gift tax potential if the beneficiary of the non-charitable portion is not a spouse or the donor him/herself.

Question 5

CRAT Requirements

Answer 5

• Fixed annuity of at least 5% of original value of trust assets to no-charitable beneficiaries.
• Charitable remainder interest must be at least 10% of the original trust value
• Term of payments can be life or up to 20 years

Question 6

CRUT - Charitable Remainder Unitrust

Answer 6

• The difference between a CRAT and CRUT is how the annuity payment is calculated. In a CRUT a fixed percent of the fair market value must go to non-charitable beneficiaries instead of a CRUT where it is a fixed percent of the original value of the trust.
• Remainder still goes to charity and the fixed 5% rule still applies
• Charitable remainder must still be 10%

Question 7

NIMCRUT - Net-income Unitrust

Answer 7

The main difference is that in a NIMCRUT the calculation of payout is limited to the lesser of the stated percent or the annual net income earned.
- This protects the reminder portion because the Principal will not be invaded for payout

Question 8

PIF’s - Pooled Income Funds

Answer 8

• Usually funded with lots of small donations
• The donor purchases fund units
• The fund units pay out to the non-charitable beneficiary and remainder still goes to the charity.

Question 9

CLT - Charitable Lead Trust

Answer 9

Exact opposite of the charitable remainder trusts
- Income will got to the charity and the remainder will go to non-charitable beneficiaries.
CLAT = Guaranteed annuity interest
CLUT = Guaranteed unitrust interest

Not limited to the 20 year rule.

Question 10

Community Foundation

Answer 10

• Have public charity status.
• Usually a grant making entity for the benefit of the community.
• Can often direct the donations to a specific area.

Question 11

Donor Advised Funds

Answer 11

A charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families or individuals.

• Subaccount fund chosen by donor
• Donor directs donations
• Charitable deductions for donations

Question 12

Private Foundations

Answer 12

Typically set up and established by the donor and the donors family.
- Flexible control of family members
- Historically administratively costly
-

Question 13

A charitable deduction will be allowed for the full value of property that passes to a qualified charity as a result of a qualified disclaimer made by a prior beneficiary?

Answer 13

True

Question 14

Donor advised funds give the donor unfettered and full control over the assets in their DAF account?

Answer 14

False

The assets are held by the charity and any distributions need the sponsoring charity’s approval.

Question 15

A charitable deduction is allowed for the entire value of a bequest to a qualified charity even though the property is not included in the donor’s gross estate?

Answer 15

False
A charitable deduction will be received for a gift of one’s entire estate to a qualified charity at death only if the subject property is included in the donor’s gross estate.

Question 16

Private foundations provide lower annual charitable deduction percentages than are generally allowed for charitable contributions to public charities?

Answer 16

True

Question 17

One of the disadvantages of the charitable gift annuity is that it is an arrangement requiring a trust agreement and has ongoing trustee fees?

Answer 17

False
One of the advantages of charitable gift annuities is that they are simple in design and administration and do not require a trust arrangement or involve trust fees.

Question 18

It is now possible to create a charitable remainder trust in combination with a qualified terminable interest property (QTIP) trust in favor of the surviving spouse and to avoid federal estate tax liability entirely?

Answer 18

True

Question 19

Charitable lead trusts are structured so that one or more noncharitable beneficiaries receive the remainder interest in the trust when it terminates?

Answer 19

True

Question 20

If life insurance is transferred to a charity two years before the decedent’s death, the life insurance policy would qualify for the charitable estate tax deduction?

Answer 20

True

Question 21

So that gifts of remainder interests made to charity may qualify for the charitable income, estate, or gift tax deduction, the gift must be in the form of a charitable remainder trust or a pooled-income fund?

Answer 21

True

Question 22

The fair market value of a charitable remainder interest is the present value of the interest at the time of transfer?

Answer 22

True

Question 23

With a charitable remainder annuity trust, one or more noncharitable income beneficiaries receive a fixed percentage of not less than 5 percent of the net fair market value of the trust assets as revalued annually?

Answer 23

False
A charitable remainder annuity trust provides a noncharitable income beneficiary with a fixed annuity worth not less than 5 percent of the initial net fair market value of the property contributed to the trust. It is a charitable remainder unitrust that provides a fixed percentage, revalued annually, of the fair market value in the trust.

Question 24

Under current tax law, the value of a remainder interest passing to charity in a CRT must be at least 10 percent of the value of the property transferred to the trust?

Answer 24

True