Estate Planning: Charitable Gifting (Module 10)
CRAT vs CRUT: Estate tax charitable deduction
In both types, if the trust is structured to take effect upon death of donor, so that some beneficiary receives the income, then donor's estate receives an estate tax charitable deduction
CRAT vs CRUT: Remainderman
In both types, the donor is entitled to an immediate income tax deduction for the present value of the property that passes to the charity, as it is the remainderman
The Pension Protection Act of 2006 (PPA) permits traditional IRA owners to make tax-free distributions up to $_____________ from their IRA to a qualified public charity through 2009, this change was made permanent in 2015. The owner of a traditional IRA must take required minimum distributions after they attain age 70 ½. By making Qualified Charitable Distributions (QCDs) after age 70 ½, the requirement to take mandatory distributions is met, and the owner is not taxed on the income.
$100k
For a donated item that exceeds $__________, a qualified appraisal must be included with the donor's income tax return.
$5k
What are examples of tangible personal property?
- Jewelry - Automobiles - Art works and stamp collections, but only if created or produced by someone other than the grantor - Books (all of these tangibles would be considered capital property if created by someone else)
If the donee is a public charity what is the maximum annual deduction for all the different gifts of property?
- cash = 50% - ordinary income property = 50% - long term capital gain property = 30% - use related tangible property = 30% - use unrelated tangible property = 50%
What are rules that need to be followed with Charitable Stock Bailouts?
- no agreement to time or certainty of redemption - no characteristics of a prearranged transaction - no redemption of stock directly to shareholders
Which of the following is/are true about the difference between CRATs and CRUTs? 1. After it is created, additional assets can be added to a CRUT but not a CRAT. 2. A CRAT must pay out a specified amount of income (a fixed percentage) of the value of the corpus; a CRUT must pay out a specific amount of income. 3. If a term of years is applied, a CRAT cannot exceed 20 years. A CRUT term can be 30 years or longer. 4. At the termination of the trust, the CRAT property can pass to a qualified charity; the CRUT property passes to a public charity.
1 Answer II is reversed. Distributed CRUT income is a fixed percentage of an annually revalued principal. The amount of the income distribution can vary. The term of years is the same with a CRUT as with a CRAT. Both the CRAT and CRUT remainder property can pass to a qualified charity.
Which of the following charitable transfers allow for both a life annuity and term certain (up to 20 years)? 1. CRAT 2. CRUT 3. Pooled income fund 4. Gift annuity
1, 2 Pooled income and gift annuity do not allow a term certain other than the actual life of the beneficiary.
Which of the following charitable giving techniques require a 5% payout of corpus? 1. CRAT 2. CRUT 3. Charitable gift annuity 4. Pooled income fund
1, 2 The CRAT and the CRUT are subject to the minimum 5% distribution rule.
Which of the following is/are charitable remainder trusts? 1. CRAT 2. CRUT 3. CLUT 4. Pooled-income fund
1, 2, 4 Even a pooled-income fund is considered a charitable remainder trust. A charitable lead trust works in reverse of the remainder trust. There was no other answer.
Mr. and Mrs. Larry Donaldson started LD, Inc. 30 years ago. LD, Inc. initially was an S corporation but as profits grew it was changed into a regular corporation 20 years ago. It has retained earnings of nearly $1 million. LD, Inc. never adopted a retirement plan because the majority of the employees are low paid with high turnover. Larry and his wife, Helen, have been contributing to deductible IRAs and investing other savings in the stock market. They would like to make a charitable contribution that would reduce their current income taxes. What would you suggest? 1. Establish a NIMCRUT and contribute either cash or existing investments 2. Establish a charitable stock bailout using LD, Inc. stock. This will be a cashless charitable deduction 3. Contribute a $100,000 distribution from IRA funds directly to charity 4. Contribute cash to a donor advised fund
1, 2, 4 ? The NIMCRUT, the charitable stock bailout, and the donor advised funds enable the Donaldson's to achieve their objectives of benefitting charity(s) and reducing current income tax. The $100,000 distribution from an IRA is still permitted. However, if does not create a tax deduction. Secondly it is for clients age 70½ or older who need to take RMDs. There is no age given in the question. You cannot assume the client is 70½ or older.
Which of the following are examples of income in respect of a decedent (IRD)? 1. Quarterly stock dividends declared but not paid 2. IRA with a CRT as a beneficiary (The spouse is the income beneficiary of the CRT) 3. Royalties receivable 4. Life insurance death benefits
1, 3 Dividends declared but not paid are IRD.The IRA will be paid to the CRT (tax-exempt). Life insurance death benefits are income tax free. The royalties receivable will be subject to IRD. Answer II is a tough answer. The IRA money goes into the CRT under charitable gifts. It is not subject to estate taxes. There is no IRD if no estate taxes are paid.
Which of the following is (are) true about pooled-income funds? 1. The fund contains a variety of assets donated from many different sources. 2. The remainder interest must be revocably earmarked to the charitable organization. 3. The income attributed to the pooled income (not less than 5% of the net fair market value of the trust assets as annually revalued) is paid at least annually. 4. The fund is much like a mutual fund maintained by a qualified charity.
1, 4 The remainder interest must be irrevocably earmarked. There is no 5% distribution rule with a pooled-income fund.
If the donated property is use-unrelated, meaning that the asset is unrelated to the function of the charity, that is, a gift of jewelry to a religious organization, the donor's charitable deduction is limited to the basis in the asset, subject to _____% of the donor's AGI.
50%
Ordinary income property given to a public charity (column 2) by an individual is deductible subject to _____% of the contribution base ceiling. However, a taxpayer's deduction is generally limited to the basis (cost) for the property (column 7).
50%
Billy and Alice Thomas own 400 acres of land. Their basis is $500 per acre (purchased in 1990). They recently received an offer to buy 100 acres for $5,000 per acre. They are considering donating the property to charity because the property taxes and liability insurance costs are increasing. Which of the following would you consider? 1. If they used a CRUT, they could get an income tax deduction of $500,000. 2. If they used a CRUT, the property could be sold and the proceeds invested in municipal bonds. 3. They could sell the land and give the proceeds to charity. 4. If they contributed to a pooled income fund, the property could be sold off and the proceeds invested in municipal bonds. 5. If they contributed to a pooled income fund, they would not lose control of the land.
2 If the Thomases donate the land to a CRUT, the property could be sold with no capital gains tax, with the proceeds then invested in municipal securities. The income tax deduction will be based on the remainder interest, not $500,000 (Answer I). If they sold off the land, they would have to pay capital gain which would reduce the charitable gift (Answer III). Pooled income funds cannot invest in tax-exempts, and the property of all donors is commingled (Answers IV and V). Yes, they would get an income tax deduction based on cash (basis 60% of AGI) rather than 30% of AGI using FMV.
A donor advised fund is: 1. Controlled by the donor 2. Controlled by a sponsoring organization 3. Funded by a group of various donors 4. Funded by an individual donor
2, 4 While the donor to a donor advised fund may make recommendations ultimately the sponsoring organization makes the distribution decisions. By definition answers II and IV are the best answers. Answer III would indicate donors of all types.
Fair Market Value of life insurance policy: A donor who is the owner and the insured may deduct the fair market value of the policy as a charitable deduction on his or her income tax return, limited to ____% of AGI for a qualified public charity.
30%
If the donor is making a gift of long term capital gain property to a public charity, the maximum income tax deduction that may be taken is ______% of the donor's AGI.
30%
If the donor makes a gift of property that is a long-term capital gain asset, the value of the gift to the charity is the FMV of the asset on the date of the gift. However, for income tax deduction purposes, the value of the charitable income tax deduction for a long-term capital asset is _____% of the donor's AGI.
30%
When dealing with this type of asset, it is important to determine whether the asset gifted to the charity is use or non-use related to the exempt purposes of the charitable organization. The general rule regarding donations of use-related property to a qualified public charity is that the donor may utilize the FMV of the use-related property, subject to the _____% AGI rule, for charitable income tax deduction purposes, as well as the 5-year carry-forward rule.
30%
The maximum charitable income deduction on use-related property is based on the FMV of the property, subject to ____% of the donor's AGI, while the maximum charitable deduction on use-unrelated property is based on the donor's basis in the property, subject to ____% of the donor's AGI.
30% ; 50%
If the donor is making a gift of cash to a public charity, the maximum income tax deduction that may be taken is ______% of the donor's AGI.
60%
Therefore, depending on the type of property gifted and the type of charity to which the gift has been made, the value of the charitable income tax deduction may be as high as ____% of the donor's adjusted gross income.
60%
Mrs. Poole (widow), age 65, would like to contribute a substantial sum to charity, but she needs income to replace the assets gifted. She would like an income stream that has some inflation hedge. She has many charities in mind but no specific charity. What would you recommend? a. CRUT b. Pooled income fund c. CRAT d. Charitable gift annuity e. CLUT
A The keys are the variable income and the ability to change the choice of charities.
Sue wants to gift NYSE stock to a local university. She has an AGI of $80,000. The stock was purchased over one year ago for $25,000. It is now worth $30,000. What would you suggest she do to get the maximum charitable deduction? NOTE FROM INCOME TAX:An individual's deduction ceiling for gifts of appreciated long-term capital gains property to 50% organizations is 30% of AGI unless he/she elects to use the property's basis rather than fair market value (FMV). An individual using basis can deduct up to 50% of AGI. 1. Deduct $24,000 this year using FMV 2. Sell the stock for $30,000 and donate the after-tax value to charity 3. Deduct $25,000 this year using basis 4. Deduct $30,000 this year using FMV
A This answer, though incomplete, is still the best answer of the four choices. "Deduct $24,000 this year using FMV" is a total of $30,000 ($24,000 + $6,000). The $6,000 difference would be carried forward to next year. If she sells the stock, she would have to pay capital gains tax and would get a smaller charitable deduction. In addition, it says she wants to gift the stock, not sell the stock. The "note" with the question has been added for your information as that "note" would not be there when you take the exam. In the overall, FMV is better than basis. By using basis, she gets $1,000 more to deduct this year, but she losses $6,000 she can deduct next year. The present value of $6,000 is a lot more than $1,000 (PV) this year.
Charitable Remainder Annuity Trust (CRAT)
A CRAT is used in situations where the donor wishes to make a charitable contribution yet retain a string to the gifted property. With a charitable remainder annuity trust, the trust is established to provide a noncharitable beneficiary the right to receive income for a period of time (either life expectancy or a set period not to exceed 20 years). Upon the expiration of the income-paying period, the charity receives whatever is left within the trust. This is known as the remainder interest. If a term of years is used, the period cannot exceed 20 years
Charitable Lead Trust (CLT)
A trust in which a charitable organization receives the income interest and a non-charitable beneficiary (usually a family member) receives the remainder interest.
A wealthy widower wants to save estate taxes yet benefit his children. He doesn't want to gift money outright to charity now. What should he consider? a. A CRUT with a wealth replacement trust b. A donor advised fund c. A CRAT d. A CLAT
A? With a donor advised fund, the asset is gifted away. With a CLAT, the charity gets income now, and his children are the remainderman. With a CRAT, he would get the income now, and the charity will be the remainderman. Please make sure you understand these concepts.
A client wants to make a gift to charity and receive a guaranteed fixed 7% payment. Which of the following is true? a. Only a CRUT can accomplish this purpose. CRATs are limited to a 5% payout. b. A CRAT can accomplish this purpose. c. A CRUT can accomplish this purpose if the trustee guarantees 7%. d. Neither a CRAT nor a CRUT can guarantee a 7% return.
B A CRAT must pay out at least 5% of the initial FMV of the property paid into the trust that functions as a fixed (guaranteed) annuity. With a CRUT, the 7% would be paid out on the FMV of the trust assets as annually revalued. The amount of the payout could decrease.
Is raw land generally an appropriate investment for a CRAT or CRUT? a. Yes b. No
B The corpus must pay out a specified amount each year (at least 5%). Raw land may produce no income at all.
Match the charitable technique with the corresponding description. Charitable lead trust a. A fund maintained by a qualified charity that contains commingled donations from many sources and that allows a donor's estate an estate tax charitable deduction for the remainder interest b. A tax planning device in which the donor transfers property inter vivos or by will to a trust whose earnings go to a charity for a certain period after which the trust corpus reverts to the donor or some other party c. charitable trust arrangement in which a fixed-income interest (worth at least 5% of the initial net FMV of the property paid in trust) passes at least annually to one or more non-charitable beneficiaries and a t the death of the last income beneficiary, the remainder interest passes to a qualified charity d. A tax-exempt organization operated exclusively for charitable purposes as specified in Section 501(c)(3) e. A charitable trust arrangement in which a fixed percentage (at least 5% of the net FMV of the trust assets as revalued annually) is paid at least annually to one or more non-charitable income beneficiaries and at the death of the last income beneficiary, the remainder interest passes to a qualified charity
B This is a charitable lead trust.
How are donations of future interest treated?
By definition, a future interest gift is any gift in which the right to use or enjoy the property is deferred until some time in the future. Since there is no immediate right by the donee to use, possess, own, or enjoy the property, the donee has not received the benefits of the gift in the year of the transfer. Therefore, any gift of a future interest to a charity, such as a gift of an original Miro painting to an art museum with a stipulation that allows the donor to keep the painting until the donor's death, is a gift of a future interest that does not qualify for an immediate charitable income tax deduction.
A lady has an estate of $10 million with an AGI of $500,000. She is terminally ill. She is inclined to give a portion of her estate to charity. What would you recommend? a. Make her interest known in her will/trust when she dies b. Do a CRAT now c. Gift a portion to charity now d. Do a charitable gift annuity now
C By gifting now, she will be able to see the results of the gift while living, and she will get an income tax deduction. If she waits, she will not see either of these results at death.
Mr. Stallworth, age 70, set up a 6% CRT. He will be the income beneficiary, while living, then his daughter, while living and finally his granddaughter for as long as she was living. Then the corpus remaining would pass to charity. One year after he set up the CRT, his daughter died. Would the charitable deduction change? a. Yes, it would change to partial interest deduction based on a new life expectancy of the trust. b. The full deduction would stop at his death. c. No change
C The original charitable deduction was based on the life expectancies of the family members at the time that the trust is set up. Death of a family member does not change the original charitable deduction. The probability of death was factored into the original deduction by use of an IRS table.
CRAT vs CRUT: Amount of income to be paid by trust
CRAT: must pay atleast 5% of intial value of corpus CRUT: must pay at least 5% of the annually reappraised value of the corpus
CRAT vs CRUT: Income payable to trust beneficiary
CRAT: payment amount remains fixed CRUT: increases with each year as the value of the corpus increases in value
CRAT vs CRUT: Number of Transfers
CRAT: the donor can make only one initial transfer of property to the corpus CRUT: the donor can make more than one transfer of property to the trust
Nicolas is thinking of gifting his old family home to a qualified charity. The family home has actually depreciated in value. Its present FMV is less than what Nicolas had paid for the home. As his financial planner, Nicolas is asking you to outline planning strategies, including gifting, which should be considered. Given these limited facts, which strategies would not apply? A. Keep the property B. Take the capital losses on his individual income tax return. C. Sell the property at a loss. D. Make a completed gift of the property to the charity. E. Take the proceeds of the sale and gift them to charity.
Correct Answer: A. Keep the property. Explanation: If managing taxes is a concern, it may be better for Nicolas to keep the property. As his old family home (the property being considered for gifting) has depreciated in value so that its present FMV is less than his basis in the property, he might be wise to keep the property.
If the donor is making a gift of cash to a public charity, the maximum income tax deduction that may be taken is 60% of the donor's AGI. State True or False. A. True B. False
Correct Answer: A. True Explanation: If the donor is making a gift of cash to a public charity, the maximum income tax deduction that may be taken is 60% of the donor's AGI. Keep in mind that the AGI rules must be satisfied in each year a charitable deduction will be taken, even if the deduction is being carried forward..
Doug and Lara want to gift property during their lifetime to reduce their taxable estates. They also want to avoid gift tax liability by not using any of their lifetime gift tax exclusion. They consult their financial advisor, who recommends making a split gift. Do you think the financial advisor made the right recommendation? A. Yes B. No
Correct Answer: B. No Explanation: Doug and Lara may elect to split a gift in order to reduce their gift tax liability. However, the split gift allows each of the spouses to use their own annual exclusions and lifetime gift tax exemptions. If these clients are interested in making lifetime gifts without using the lifetime gift tax exclusion, then Doug and Lara should consider making lifetime gifts to a qualified charity. As a result of the unlimited charitable gift tax deduction, an unlimited amount of assets may be gifted to a charity without the payment of any gift tax liability.
If George makes a gift of an original Da Vinci painting to the Boy Scouts of America, but specifies that he is allowed to keep the painting if the charity fails to use it for the Army Welfare Fund, will the gift qualify for a gift tax charitable deduction? A. Yes B. No
Correct Answer: B. No. Explanation: George did not make an irrevocable transfer of property to the Boy Scouts of America (qualified charity). In order for the transfer to be considered effective, George must irrevocably part with all ownership or control of the property. If there are "strings attached" or conditions specified by the donor under which the property may be used or enjoyed by the donee, then a completed gift has not occurred. Therefore, the gift will not qualify for a charitable gift tax deduction, nor will it qualify for an income tax deduction in the form of the charitable contribution deduction.
Statement A: Gibson makes a gift of a collection of original works of Monet to the National Museum. Statement B: Gibson makes a gift of a collection of original works of Monet to the local orphanage? A. Both statements A and B are use-related donations of tangible personal property. B. Both statements A and B are use-unrelated donations of tangible personal property. C. Statement A is a use-related donation of tangible personal property while Statement B is a use-unrelated donation of tangible personal property. D. Statement A is a use-unrelated donation of tangible personal property while Statement B is a use-related donation of tangible personal property.
Correct Answer: C. Statement A is a use-related donation of tangible personal property while Statement B is a use-unrelated donation of tangible personal property. Explanation: The distinction between use-related and use-unrelated tangible personal property depends on the purpose of the charitable organization. As the property donated (original works of Monet) to the National Museum could be used directly by the charity itself, the donation is use-related. The same original works of Monet, if donated to an orphanage, are not related to the orphanage's purpose. Since the purpose of the orphanage is not to exhibit the works of art, it will sell the art and use the proceeds from the sale for its own purposes. As a result, this gift to the orphanage would be classified as use-unrelated.
Gifting assets to charity with significant appreciation potential allows for the reduction of which of the following? 1. Estate tax liability 2. Gift tax liability 3. Income tax liability 4. General tax liability
Correct Answers: 1, 3 Explanation: Lifetime gifts to a qualified charity of appreciating property remove all future appreciation of the property from the donor's gross estate. As a result, the donor has the ability to exercise some control over the amount of the estate tax liability. Additionally, lifetime gifts of assets, whether or not appreciating assets, may qualify for the charitable income tax deduction, which allows the donor to reduce his income tax liability.
Felix owns a parcel of land in New York. The land is worth $500,000. His basis is $50,000. He would like to gift the land away to get a charitable deduction. (His AGI is $1,000,000.) In addition, he would like to improve his children's inheritance situation. Which of the following techniques for charitable transfers would be most appropriate for Felix? a. A transfer of the property to a CRAT with a stream of income paid to Felix for his lifetime b. A transfer of the property to a CLAT with a stream of income paid to a charity and the remainder to his children c. Sell the property to a charity using a bargain sale d. An outright gift to a charity and the purchase of a life insurance policy in an ILIT
D The simplest answer is an outright gift to a charity. Felix gets a charitable deduction, and the children get an estate and income tax free death benefit. In a bargain sale, Felix gets the cash and a partial income tax deduction, but he has gain to report on the sale portion. Although a transfer of the property sounds good, Felix will get an income tax deduction, and the property will be out of his estate, but he does not improve his children's situation. The lead trust is unclear as to whether he will set up the trust while living or at death. In addition, the normal usage of a CLAT is for a large donation.$500,000 would be small. A transfer of the property to a CLAT is not a bad answer, it just is not a very practical or as simple as an outright gift to a charity.
What is the required minimum distribution in a CLUT to avoid payment of the 5% excise tax? a. 5% b. 2% c. 8% d. Distribute whatever was earned or nothing at all
D Unlike the CRAT, CRUT and the family foundation where the 5% is required, there is no required minimum distribution with a CLUT.
Mary is age 60. She is divorced. She received the family home, $1 million FMV, $4 million in low basis investable assets, and about $7 million in retirement funds. Mary's sister died and she expects an inheritance $3 million after taxes. She is concerned about estate taxes. Like her sister, she suffers from multiple health problems. What would you suggest she do? a. A 10 year QPRT using her home b. Nothing, we do not have enough information c. A 10 year GRAT using $4 million of investable assets d. A 10 year 6% CRAT using $4 million of investable assets
D With a CRAT, she will get an income tax deduction now and the asset will pass to charity. A QPRT and a GRAT require her to live 10 years or the asset will be brought back into her estate. Secondly, there will be a taxable gift subject to income tax if she dies after the 10 year term. NOTE: If she inherits the $3 million from her sister, she may want to place it in the CRAT also.
Charitable Stock Bailout
In situations where the owner of closely held stock wishes to make a gift of property to a qualified charity, the charitable stock bailout may be an appropriate charitable transfer technique. In the charitable stock bailout, the stockholder gifts the closely held stock to the charity. The owner then receives a charitable deduction based upon the value of the stock gifted to the charity. Since the charity would prefer cash instead of the stock, the corporation can redeem the stock from the charity only if the corporation is totally unrelated to the charitable gift. Otherwise, the IRS would view the gift and resulting redemption as a step transaction, which would incur all of the tax advantages one is attempting to avoid. The charity gets the cash, the donor gets the charitable deduction, and the corporation gets the stock in exchange for its accumulated cash.
Charitable Gift Annuities
Involves a transfer of cash or other property to the organization. In return, payment of a specified amount determined by age is made to the donor during his or her lifetime. The rates paid are the most recent ones adopted by the Committee on Gift Annuities as agreed to by most major charities. There is an immediate income deduction for the present value of the amount ultimately to pass to the charity; part of the income received by the donor is also tax free.
Lets assume A is owner and insured on a life insurance policy with a face amount of $50k. The annual premium on this policy is $5k, and the interpolated terminal reserve cash value is $14k. The total premium paid on this policy was $10k. What is the value of the charitable gift if A absolutely-assigns the $50k policy to Charity C?
Since the policy would be sold at a gain, the value of the policy is greater than the total premium paid, so the value of the charitable gift would be $10k, 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
"Net Income with Makeup Charitable Remainder Unitrust" NIMCRUT
The Charitable Remainder Unitrust (CRUT) may also provide that the beneficiary may receive the lesser of the specified percentage of the trust assets or the trust income for the year, plus any excess trust income to the extent there was a deficiency in previous years. NIMCRUTs can be used as an alternative to qualified pension plans by investing in assets that produce little or no income in the early years (while the donor's income is high) and then converting to high-income investments in later years after the donor's retirement.
What is the FMV of a life insurance policy?
The fair market value is the replacement cost of the policy. For a premium-paying policy, the replacement cost is the interpolated terminal reserve plus any unearned premium at the date of the gift.
Pooled Income Funds
are trusts established by qualified charities to receive charitable donations from many donors, whose funds are commingled together. The charity manages the fund's pool of investments, but they cannot invest in tax exempt securities. When donors make charitable donations to these funds they are purchasing units that will pay them an annual income stream for life. Donors irrevocably gift assets that will give them a pro rata share of income, based upon the rate of return earned by the fund. If this income is not sufficient, donors can make future contributions to the fund to increase their pooled income shares. A trust generally created and maintained by a public charity rather than a private donor.
Donor Advised Fund
donors can establish an account with a mutual fund or brokerage firm that offers these funds, to receive a charitable income tax deduction, and to select the charities they wish to support.
Lets 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 $30k. The donor's AGI is $60k. Since a long-term capital asset is being gifted, what is the maximum charitable deduction the donor can take? a. $9k b. $18k c. $4.5k d. $27k
b. $18k Since a long-term capital asset is being gifted, the maximum charitable deduction the donor can take is $18k (30% of AGI)
Match the charitable technique with the corresponding description. CRUT a. charitable trust arrangement in which a fixed-income interest (worth at least 5% of the initial net FMV of the property paid in trust) passes at least annually to one or more non-charitable beneficiaries and a t the death of the last income beneficiary, the remainder interest passes to a qualified charity b. A tax planning device in which the donor transfers property inter vivos or by will to a trust whose earnings go to a charity for a certain period after which the trust corpus reverts to the donor or some other party c. A charitable trust arrangement in which a fixed percentage (at least 5% of the net FMV of the trust assets as revalued annually) is paid at least annually to one or more non-charitable income beneficiaries and at the death of the last income beneficiary, the remainder interest passes to a qualified charity d. A fund maintained by a qualified charity that contains commingled donations from many sources and that allows a donor's estate an estate tax charitable deduction for the remainder interest e. A tax-exempt organization operated exclusively for charitable purposes as specified in Section 501(c)(3)
c A CRUT pays a fixed percentage of the assets as revalued annually. The percentage is fixed not the income.
Which of the following is not true about charitable remainder trusts? a. The trust must irrevocably serve a charitable purpose. b. The trust can have an indefinite life. c. The trust must not provide a discretionary benefit for a definite individual among the class of potential beneficiaries. d. The trust terms can be enforced by someone other than the trustee.
d The trustee can change the charitable purpose. The trust's irrevocable remainder interest must be paid to or held for a charity; thus, it can have an indefinite life. The trust terms are enforced by the trustee. The charitable trust must have a definite class of beneficiaries.
If the gift is a gift of tangible personal property that may be sold at a capital gain, how will this property be treated for capital gain purposes?
for charitable income tax deduction purposes it will be treated as long-term capital gain property.
For example, if a famous painter donated one of his paintings, worth $25,000, to an art museum,whats his deduction?
his deduction would be limited to his cost for producing the painting. This means that only the cost for canvas, paint, etc., would be deductible. No deduction would be allowed for the value of his time and talent.
CRAT vs CRUT: Nature of transfer of property
in both trusts, the donor must make an irrevocable transfer of the property
If stamps were donated to a charity and the charity sold the stamps and used the proceeds for the benefit of the charity, does this count as a use property?
nonuse
Private Foundations
or family foundations are separate legal entities, which are either not-for-profit corporations or tax-exempt trusts. They are legally complex and expensive to establish since the IRS must first issue a tax exempt status as a private foundation, and set up and maintenance fees are high. The founder has total legal control over the entity during his lifetime, and can transfer that control to his heirs at his death. Most private foundations are funded, controlled and managed by wealthy family members who make tax-deductible gifts to the foundation. The foundation must distribute a minimum of 5% of its assets to public charities each year. All contributions made to the foundation during life or at death are free of gift, estate and generation skipping transfer taxes. Private foundations establish a public legacy through the types of charitable organizations they choose to support.
Ordinary Income Property
property that, when sold, results in recognition of ordinary income Examples include: - Capital assets held less than the requisite long-term period at the time contributed, - Section 306 stock - Works of art, books, letters and musical compositions, but only if given by the person who created or prepared them or for whom they were prepared, and - A taxpayer's stock in trade and inventory (which would result in ordinary income if sold).
If a sufficient amount of property is gifted during the donor's lifetime, the property removed from the gross estate can __________ the size of the taxable estate and can also actually reduce the donor's estate tax liability
reduce
When doning long-term capital gain property, what happens if theres portions that cannot be used due to the 30% deduction maximum, what happens to the unused portions?
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.
When life insurance is sold, any gain is taxed at ordinary income rates, therefore a gift of life insurance is a gift of ordinary income property. As such, the charitable deduction is equal to what?
the LESSER of the donor's adjusted basis or the fair market value of the life insurance policy. If the fair market value of the policy exceeds the policyholder's net premium payments, the charitable deduction is limited to the donor's basis, which is the net premium payments made. The value of the gift is not the face amount of the insurance policy.
