Charitable Gifting - Review Questions

Question 1

Let’s assume the donor owns a capital asset, which qualifies as a long-term capital asset, for example, corporate stock. The value of the stock on the date of the gift is $30,000. The donor’s AGI is $60,000. Since a long-term capital asset is being gifted, what is the maximum charitable deduction the donor can take?

Choose the best answer.

1) $4,500
2) $9,000
3) $18,000
4) $27,000

Answer 1

3) $18,000

Since a long-term capital asset is being gifted, the maximum charitable deduction the donor can take is $18,000 (30% of $60,000).

Therefore, the donor will be able to carry-forward the remaining $12,000 deduction, applying it according to the same 30% AGI rules, for the next 5 years. The 5-year carry-forward allows the donor to use the unused portion of the charitable deduction in each of the next 5 tax years until the deduction has been fully utilized.

Question 2

However, if the stamps were sold, even if the proceeds were used by the organization for educational purposes, the use of the property would be an _________ use.

Answer 2

unrelated

However, if the stamps were sold, even if the proceeds were used by the organization for educational purposes, the use of the property would be an unrelated use.

Question 3

Let’s assume A is owner and insured on a life insurance policy with a face amount of $50,000. The annual premium on this policy is $5,000, and the interpolated terminal reserve cash value is $14,000. The total premium paid on this policy was $10,000. What is the value of the charitable gift if A absolutely-assigns the $50,000 policy to Charity C?

Answer 3

Since the policy would be sold at a gain, the value of the policy ($14,000) is greater than the total premium paid, so the value of the charitable gift would be $10,000, the donor’s basis. On the other hand, if the value of the policy is less than the total premium paid, then the charitable deduction would equal the replacement cost of the policy.

If A absolutely-assigns the $50,000 policy to Charity C, and this policy has a value of $5,000, and the total premium paid was $10,000, the policy would be sold at a loss. The charitable deduction would be based on the replacement cost of this policy. Additionally, if A continues to gift the cost of the premium to the charity on an annual basis, that $5,000 may also constitute a continuing charitable gift. In order for this transfer to qualify as a gift, A cannot require Charity C to use the $5,000 contribution for premium payments.

Question 4

Which of the following statements is not correct in regards to gifting life insurance to charity?

1) The donor can deduct the interpolated terminal reserve plus and unearned premium at the date of the gift
for a premium-paying policy on their income tax return.
2) The donor can deduct the amount that the same issuer would charge for a policy of the same amount, at the
insured’s attained age (increased by credits and reduced by outstanding loans), for a single premium policy
on their income tax return.
3) The donor can deduct the premiums paid up to the date of transfer for a premium-paying policy on their
income tax return.
4) The donor can deduct the amount of the gross premium paid by the insured for a newly issued paid up
policy on their income tax return.

Answer 4

3) The donor can deduct the premiums paid up to the date of transfer for a premium-paying policy on their
income tax return.

Question 5

Elaine makes a gift of Exxon stock that she has owned for five years to a qualified public charity. The value on the date of the gift was $45,000. Elaine’s adjusted gross income for the year was $75,000. What is the maximum charitable deductions that Elaine can take?

1) $27,500
2) $22,500
3) $15,500
4) $8,500

Answer 5

2) $22,500

30% of AGI

Question 6

The donor’s charitable deduction is limited to the basis in the asset, subject to 50% of AGI, for which of the following gifts?

1) A civil war musket to a historical museum
2) A first edition book to a college
3) A diamond ring to a synagogue
4) A Picasso painting to an art museum

Answer 6

3) A diamond ring to a synagogue

non usable gift is limited to basis

Question 7

Which of the following are requirements for a CRAT?

1) The donor must irrevocably transfer the property to the trust.
2) A CRAT can only be created during the donor’s lifetime.
3) The donor can make multiple transfers of property into the trust.
4) The income payments to the trust beneficiary remain fixed once they are calculated.
5) The value of the charitable interest must equal at least 10% of the value of the assets when they are
transferred into the trust.

Answer 7

1) The donor must irrevocably transfer the property to the trust.
4) The income payments to the trust beneficiary remain fixed once they are calculated.
5) The value of the charitable interest must equal at least 10% of the value of the assets when they are
transferred into the trust.

Question 8

Which of the following are requirements for a CRUT?

1) The income payments to the trust beneficiary remain fixed once they are calculated.
2) A CRUT can be created during the donor’s lifetime or at their death.
3) The donor can make only one initial transfer into the trust.
4) The value of the charitable interest must equal at least 10% of the value of the assets when they are
transferred into the trust.
5) The trust must pay out a minimal amount of at least 5% and not more that 50% of the annually reappraised
value of the trust corpus.

Answer 8

2) A CRUT can be created during the donor’s lifetime or at their death.
4) The value of the charitable interest must equal at least 10% of the value of the assets when they are
transferred into the trust.
5) The trust must pay out a minimal amount of at least 5% and not more that 50% of the annually reappraised
value of the trust corpus.

Question 9

Which testamentary gift is better to pass to charity than to the decedent’s beneficiaries?

1) A decedent’s life insurance policy
2) A decedent’s IRA
3) A decedent’s bank accounts and investment accounts titled as TOD and POD

Answer 9

2) A decedent’s IRA

Charities do not pay any income tax on retirement assets they receive but individual beneficiaries would pay income tax on an IRA bequeathed to them. A death benefit from a life insurance policy passing to an individual is received income tax-free. Bank accounts and investment accounts receive a step-up in basis at the date of death value.