Charitable Planning Flashcards
99% of our clients will not be paying the
federal gift or estate taxes because of what?
Increased exclusions from transfer
taxation
Define the term public charity
Have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities, (iii) receive income from the conduct of activities in furtherance of the organization’s exempt purposes, or (iv) actively function in a supporting relationship to one or more existing public charities.
Define the term private charity
Typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources) and most have as their primary activity the making of grants to other charitable organizations and to individuals, rather than the direct operation of charitable programs.
True or False
Generous gifts to charities in a person’s
will create no tax benefit for most taxpayers
True
True or False
For those clients whose assets and estates exceed the applicable transfer tax exclusions, including charitable transfers in an estate plan continues to be an excellent tax-saving opportunity
True
True or False
For those clients whose assets and estates exceed the applicable transfer tax exclusions, including charitable transfers in an estate plan continue to be an excellent tax-saving opportunity
True
A CRT is an____________ that pays a ______________
or percentage of its initial value to
a non-charitable beneficiary for life or for a term of up to ______.
irrevocable trust
fixed dollar amount
20 years
The trust terminates in favor of
charity
These are three characteristics of what type of trust?
1. The trust must be irrevocable
It must be valid under state law.
2. The donor is entitled to a charitable deduction for income, gift and estate tax purposes for the present value of the remainder interest given to charity.
3. The trust is an entity is exempt from federal income taxes. However, there is an exception: a 100% excise tax is imposed if the CRT has unrelated trade or business
income (UBTI).
Characteristics of a CRT
These are three characteristics of what type of trust?
- Other than the annuity or unitrust payment, it can make no payment to or for the use of any person other than the charitable organization
- The trust cannot be subject to the power to invade, alter, amend or revoke the trust for the beneficial use of any person other than a qualified charitable
organization - The donor cannot retain the power to sprinkle payments
CRT- Charitable Remainder Trust
These elements are common to which trusts?
▪ The annual payout must be a minimum of 5%
▪ The annual payout may not exceed a maximum of
50%
▪ The duration of the non-charitable interest in the trust may not exceed either the life of the non-charitable beneficiary or 20 years
▪ There must be a remainder interest in the trust for the benefit of charity equal to at least 10% of the initial
trust value
Common Elements
of a CRAT and CRUT
What are the income tax advantages of CRTs
▪ An income tax charitable deduction is
available in the year of the gift
▪ No capital gain is realized by the trust on the sale of the contributed assets
▪ The CRT is tax-exempt with the possible
exception of the UBTI
How to Calculate the Income Tax
Charitable Deduction
Value the asset(s) being transferred to the
Trust
Value the non-charitable income interest
actuarially
Reduce the value of the asset by the value of the income interest to determine what is
passing to charity
What is the value of the donor’s federal income tax deduction a function of?
The type of charitable remainderman i.e., public charity or private foundation;
The kind of property contributed to the CRT; and
Whether, at the end of the non-charitable term, the assets are distributed
▪ Outright to the charitable remainderman, or
▪ Held in trust for the benefit of the charitable remainderman
True or False
The donor’s charitable income tax deduction
for gifts to a CRT is subject to the same
percentage limitations and carry-forward
rules that apply to outright gifts.
True
True or False
To qualify for an income tax deduction, the charity must be described in §170(c)
(income tax), §2055(a) (estate tax), and
§2522(a) (gift tax)
True
To ensure an income tax deduction qualifies
for the 60% (100% for 2020-2021)or 30% of
AGI limitation for gifts to public charities, the
the charitable beneficiary should be further
limited to public charities described in
§170(b)(1)(A)
– Otherwise, the income tax deduction will
be limited to the AGI limitations for gifts to
a private foundation
A transfer to a CRT qualifies for the unlimited______________ to the extent of the present value of the __________).
Gift tax charitable deduction
remainder interest
There is no gift tax consequence if the donor or the donor’s ___________ spouse are the only ________________ of the trust
U.S. citizen
non-charitable beneficiaries
True or False
There may be a taxable gift consequence if there is a non-spouse beneficiary.
True
The decedent’s estate receives an estate tax ______________ for the present value of ________________ of a CRT.
charitable deduction
remainder interest.
If an interest in the CRTis given to a spouse, the
____________ applies.
marital deduction
Tue or False
A transfer to a CRT is a direct skip for GST
purposes
False
A distribution from a CRT to a grandchild or other skip person is a_______________.
taxable distribution
True or False
GST tax may be paid from the CRT
False
True or False
The donor must actually allocate GSTT exemption.
True
A CRT is not deemed a GST trust for purposes of
the automatic allocation rules
True or False
The donor to the CRT cannot dictate
the trust’s investment policies.
True
True or False
A CRT may limit a trustee to
investing in particular types of
securities e.g., municipal bonds
False
The CRT may be paid to “one or more persons,” at least one of which is not a charitable organization. If payable to a class of individuals, all members of the class must be alive and ascertainable at the time the trust is created. What is the exception to this rule?
If the CRT is for a term of years, the members of a class do not have to be alive and ascertainable
when the CRT is created.
A pet may be the beneficiary of a CRT.
False
True or False
A pet may be the beneficiary of a CRT.
False
The beneficiaries of a CRT may have consecutive or ______________
interests
concurrent
What is the order of the treatment of the four-tier system for determining the income tax
the character of the distributions made from a CRT, w
Ordinary income generated by the CRT in the current tax year, plus any ordinary income which was not distributed in prior years
– Capital gain income generated by the CRT in the current tax year, plus any capital gain income which was not distributed in prior years
– Other income (including tax-exempt income) generated by the CRT in the current tax year or a prior year
– Distribution of principal (not income)
The remainder must be
___________ paid to a charity.It can pass_______________or in trust
The trust can or cannot have more than
one charitable remainderman
irrevocably
outright
can
Do The Regulations require the CRT to
provide for an alternative
remainderman?
Who may substitute an alternate
charity as the remainderman- the donor or the charity?
require
donor