Lesson 8: The Charitable and Marital Deductions Flashcards
Grant donated $300 to his friend’s GoFundMe account to raise funds for his nephew’s surgery, and property worth $700 to the American Civil Liberties Union. Which of the following statements concerning her contribution is true?
A) Grant may take a deduction for both contributions.
B) The ACLU is required to send a confirmation of the contribution to Grant, but GoFundMe is not.
C) Grant does not need confirmations from either organization.
D) Grant must get the property appraised in order to take the charitable contribution.
The correct answer is (B).
Contributions totaling more than $250 require the organization to provide the donor with a written statement of acknowledgment, so Grant would need confirmation from the ACLU. Because GoFundMe is not a qualified charity, there is no deduction available for Grant’s donation, and the organization is not required to provide Grant with a confirmation of receipt. Grant’s property donation falls below the amount required for appraisals ($5,000).
Arthur transfers property valued at $500,000 to a charitable organization in return for a single life annuity based on his life valued at $200,000. Arthur’s adjusted basis in the transferred property was $100,000. Arthur died two years after the transaction and at the time of his death, the property had a fair market value of $325,000. At the time of the initial transfer, what was Arthur’s charitable income tax deduction (ignoring any AGI limitations)?
A) $200,000
B) $300,000
C) $225,000
D) $125,000
The correct answer is (B).
The value of the contributed property less the value of the annuity received is Arthur’s charitable deduction for income tax purposes. In this case, $500,000 − $200,000 = $300,000.
Which of the following charitable trusts allow both term certain up to 20 years and life annuities?
I. CRATs
II. CRUTs
III. Pooled income funds
A) I only
B) II only
C) I and II
D) I, II, and III
The correct answer is (C).
Pooled income funds do not allow a term other than the actual life of the beneficiary.
On January 15, Linus transfers property to a trust over which he retains a right to revoke one-fourth of the trust. The trust is to pay Patti 5 percent of the trust assets valued annually for her life with the remainder to be paid to a qualified charity. On September 1, Linus dies and the trust becomes irrevocable. Which of the following statements is (are) correct?
I. The trust is created on January 15.
II. The trust is created when it becomes irrevocable on September 1.
III. Linus receives a charitable deduction equal to the present value of 25 percent of the remainder interest.
IV. Linus receives a charitable deduction equal to the present value of 75 percent of the remainder interest.
A) I only
B) I and II
C) III only
D) III and IV
The correct answer is (A).
The trust is created when funded. Because of the right to revoke, however, it does not qualify for any charitable deduction.
George made the following transfers during the year:
$3,000 donation to the local high school. The school then allowed him to utilize the school’s pool for a party.
$500 to the children’s library during the annual fund drive, for which George received a t-shirt worth $10 and a bumper sticker worth $5.
100 shares of PixieCo. stock to the United Way. At the date of the contribution, the stock had a fair market value of $6 per share. Steve’s adjusted taxable basis in the stock was $10 per share and he held the stock long-term.
Ignoring any AGI limitations, what is Steve’s maximum charitable income tax deduction for this year?
A) $4,000
B) $3,985
C) $1,100
D) $4,100
The correct answer is (C).
Ignoring any AGI limitations, George could not deduct the $3,000 contribution because the contribution entitled him to use the pool. The $500 contribution to the children’s library will not be reduced by the value of the shirt and bumper sticker because those items are considered de minimis. Without any AGI limitations, the full fair market value of the stock contribution may be deductible: $600 ($6 × 100). $500 + $600 = $1,100.
Which statement about the gift tax marital deduction is not correct?
A) One spouse may gift any amount to the other spouse without gift tax as long as the gift is not terminal interest property.
B) The unlimited gift tax marital deduction is not available to non-citizen spouses.
C) Non-citizen spouses may receive survivor benefits under a joint-and-survivor annuity.
D) The regular annual exclusion available to all donees is available for gifts to non-citizen spouses.
The correct answer is (D).
There is a special annual exclusion available for marital gifts to non-citizen spouses, which is approximately 10 times the normal exclusion. The amount of the exclusion is indexed annually for inflation.
Only property that passes from the deceased spouse to the surviving spouse is eligible for the marital deduction. Which of the following will not qualify for the estate tax marital deduction?
A) A terminal interest in property
B) Property passed under state intestacy laws
C) Life insurance proceeds
D) Property passed by will
The correct answer is (A).
Terminal interest in property is not eligible for the estate tax marital deduction (with the exception of certain survival clauses).
A QTIP trust must
A) be in the form of a testamentary trust.
B) give the surviving spouse the right to require only income producing assets be in the trust.
C) permit the trustee to use any amount of the trust principal for any purpose for the spouse.
D) give the surviving spouse a general power of appointment over the assets.
The correct answer is (B).
The surviving spouse must be able to require only income producing assets be in the trust.
Bob and Ted are married and live in California, a community property state. Their community property consists of real property with an adjusted basis of $300,000 and a fair market value of $750,000 and other property with an adjusted basis of $100,000, and a fair market value of $75,000. Bob dies and leaves his entire estate to Ted. What is Ted’s adjusted basis in the real property and other property after Bob’s death?
A) Real property = $150,000; Other property = $37,500
B) Real property = $300,000; Other property = $50,000
C) Real property = $375,000; Other property = $100,000
D) Real property = $750,000; Other property = $75,000
The correct answer is (D).
Both the decedent’s interest and the survivor’s interest in the community property receive a basis adjustment to the fair market value on the date of Bob’s death.
Nine months ago, Bonnie gave land to her husband Ron. At the date of gift, the land had a fair market value of $400,000 and an adjusted taxable basis to Bonnie of $250,000. Ron died bequeathing all of his property to Bonnie. If the land had a fair market value of $450,000 on the date of Ron’s death, what is Bonnie’s adjusted taxable basis in the land?
A) $0
B) $250,000
C) $400,000
D) $450,000
The correct answer is (B).
If an heir or legatee receives property from a decedent that the decedent acquired by gift from the heir/ legatee within one year of the decedent’s death, the heir/legatee takes the decedent’s basis (which will be the donor’s basis). There is no stepped-up basis. Since Ron died within one year of the gift, and bequeathed the property to the original donor (Bonnie), Bonnie’s basis in the property will not be stepped up. Bonnie’s basis will be $250,000.
