Estate Planning Exam 3 (chapters
9,10,11) questions and answers
What factors must an individual consider before making a charitable gift? (5) - correct answer
✔✔ Tax consequences, type of donee, timing of the contribution, taxpayer's agi, and donor's
charitable objectives
Define "charitable organization" as detailed in the Internal Revenue Code. - correct answer ✔✔
A state, a possession of the United States, or any political subdivision. A corporation, trust, or
community chest, fund, or foundation that is organized in the US and is operated exclusively for:
religious, charitable, scientific, literary, educational purposes; fostering national or intentional
amateur sports competition; preventing cruelty to animals or children. A post or organization of
war veterans organized in the United States. A domestic fraternal society, order, or association,
operating under the lodge system, but only if the contribution is to be used for the purposes
listed in 2 above. A cemetery company.
Identify three ways to verify a charitable organization's qualifying status - correct answer ✔✔
www.irs.gov , IRS publication 78 , www.guidestar.org
How does a private operating foundation differ from a private nonoperating foundation? -
correct answer ✔✔ Operating spend at least 85% of their AGI on activities engaged in for the
active conduct of the exempt purpose. If private foundations do not meet asset tests,
endowment tests, or support tests then they are nonoperating foundations.
List at least three examples of deductible out-of-pocket expenses related to donating services to
a charitable organization - correct answer ✔✔ Direct automobile expenses, support for foster
children in excess of payments received, and the cost of uniforms to be worn while performing
charitable duties.
,Direct automobile expenses, support for foster children in excess of payments received, and the
cost of uniforms to be worn while performing charitable duties. - correct answer ✔✔ Equal to
the fair market value of the property reduced by any ordinary income that would come from the
sale.
What does it mean for a charity to be a "60% organization?" - correct answer ✔✔ If the donee
organization is a 60 percent charity, then a donor can deduct charitable contributions to these
charities up to a limit of 60 percent of his AGI.
List the factors a donee must consider when electing to deduct the adjusted basis of donated
property as opposed to electing to deduct the fair market value of the property. (4) - correct
answer ✔✔ The donor's current and projected adjusted gross income for the next 5 years. The
fair market value of the donated property. The adjusted basis of the donated property. The time
value of money.
If an individual donates property with a fair market value of $750, what information must the
donor provide to the IRS and on what tax form is the information provided? - correct answer
✔✔ If the value of a donated item is $5,000 or less but more than $500, the donor must
provide information on how and when the property was acquired, as well as its adjusted basis.
This information along with the donee's name and address and the date of the contribution
must be provided on Form 8283, Noncash Charitable Contributions.
Why would a donor request a statement of value from the IRS? - correct answer ✔✔ To assure
himself the value that the IRS will allow as a charitable deduction.
If a charitable annuity pays the annuity to the donor, how is the value of the donor's charitable
income tax deduction calculated? - correct answer ✔✔ It is Equal to the value of the property
contributed less the value of the annuity.
Under what circumstances may the donor of encumbered property, donated in return for a
charitable annuity, avoid recognizing the ordinary income and capital gain associated with the
annuity in the year of the transfer? - correct answer ✔✔ If the annuity is non-assignable and
, the donor or designated survivors' trust are the only annuitants then the donor does not
recognize ordinary income or capital gain.
Which charitable trusts provide the donor with an income tax deduction in the year the
property is transferred to the trust? (3) - correct answer ✔✔ Pooled income fund, charitable
remainder trust, charitable lead trust.
Explain how a pooled income fund benefits a donor. - correct answer ✔✔ The donor receives a
current income tax deduction for the present value of the remainder interest.
How is a Charitable Remainder Annuity Trust (CRAT) less flexible than a Charitable Remainder
Unitrust (CRUT)? - correct answer ✔✔ A CRAT does not allow additional contributions after
inception while a CRUT does. A CRUT can limit its income payment to the trust's net income for
the year and allow for the trust to make up the payment in a year of excess income. A CRAT
must make its annuity payment each year, even if the payment requires utilizing the CRAT's
principal. The CRAT payment is also a fixed amount, where the CRUT payment is a fixed
percentage of the trust's assets.
If an individual donates the underlying ownership interest of his personal residence to a charity,
but retains the right to live in the residence for the remainder of his life, how is the donor's
charitable deduction calculated? - correct answer ✔✔ A charitable deduction equal to the
present value of the remainder interest.
When a donor creates and funds a CLAT under the grantor trust provisions, how is the income
of the trust treated for income tax purposes each year? - correct answer ✔✔ The grantor
recognizes all of the trust's income on the taxable income.
Under what circumstances is a testamentary charitable transfer deductible from a decedent's
adjusted gross estate? - correct answer ✔✔ The bequest must be mandatory. The amount of
the bequest must be certain and the asset must be included in the gross estate.
9,10,11) questions and answers
What factors must an individual consider before making a charitable gift? (5) - correct answer
✔✔ Tax consequences, type of donee, timing of the contribution, taxpayer's agi, and donor's
charitable objectives
Define "charitable organization" as detailed in the Internal Revenue Code. - correct answer ✔✔
A state, a possession of the United States, or any political subdivision. A corporation, trust, or
community chest, fund, or foundation that is organized in the US and is operated exclusively for:
religious, charitable, scientific, literary, educational purposes; fostering national or intentional
amateur sports competition; preventing cruelty to animals or children. A post or organization of
war veterans organized in the United States. A domestic fraternal society, order, or association,
operating under the lodge system, but only if the contribution is to be used for the purposes
listed in 2 above. A cemetery company.
Identify three ways to verify a charitable organization's qualifying status - correct answer ✔✔
www.irs.gov , IRS publication 78 , www.guidestar.org
How does a private operating foundation differ from a private nonoperating foundation? -
correct answer ✔✔ Operating spend at least 85% of their AGI on activities engaged in for the
active conduct of the exempt purpose. If private foundations do not meet asset tests,
endowment tests, or support tests then they are nonoperating foundations.
List at least three examples of deductible out-of-pocket expenses related to donating services to
a charitable organization - correct answer ✔✔ Direct automobile expenses, support for foster
children in excess of payments received, and the cost of uniforms to be worn while performing
charitable duties.
,Direct automobile expenses, support for foster children in excess of payments received, and the
cost of uniforms to be worn while performing charitable duties. - correct answer ✔✔ Equal to
the fair market value of the property reduced by any ordinary income that would come from the
sale.
What does it mean for a charity to be a "60% organization?" - correct answer ✔✔ If the donee
organization is a 60 percent charity, then a donor can deduct charitable contributions to these
charities up to a limit of 60 percent of his AGI.
List the factors a donee must consider when electing to deduct the adjusted basis of donated
property as opposed to electing to deduct the fair market value of the property. (4) - correct
answer ✔✔ The donor's current and projected adjusted gross income for the next 5 years. The
fair market value of the donated property. The adjusted basis of the donated property. The time
value of money.
If an individual donates property with a fair market value of $750, what information must the
donor provide to the IRS and on what tax form is the information provided? - correct answer
✔✔ If the value of a donated item is $5,000 or less but more than $500, the donor must
provide information on how and when the property was acquired, as well as its adjusted basis.
This information along with the donee's name and address and the date of the contribution
must be provided on Form 8283, Noncash Charitable Contributions.
Why would a donor request a statement of value from the IRS? - correct answer ✔✔ To assure
himself the value that the IRS will allow as a charitable deduction.
If a charitable annuity pays the annuity to the donor, how is the value of the donor's charitable
income tax deduction calculated? - correct answer ✔✔ It is Equal to the value of the property
contributed less the value of the annuity.
Under what circumstances may the donor of encumbered property, donated in return for a
charitable annuity, avoid recognizing the ordinary income and capital gain associated with the
annuity in the year of the transfer? - correct answer ✔✔ If the annuity is non-assignable and
, the donor or designated survivors' trust are the only annuitants then the donor does not
recognize ordinary income or capital gain.
Which charitable trusts provide the donor with an income tax deduction in the year the
property is transferred to the trust? (3) - correct answer ✔✔ Pooled income fund, charitable
remainder trust, charitable lead trust.
Explain how a pooled income fund benefits a donor. - correct answer ✔✔ The donor receives a
current income tax deduction for the present value of the remainder interest.
How is a Charitable Remainder Annuity Trust (CRAT) less flexible than a Charitable Remainder
Unitrust (CRUT)? - correct answer ✔✔ A CRAT does not allow additional contributions after
inception while a CRUT does. A CRUT can limit its income payment to the trust's net income for
the year and allow for the trust to make up the payment in a year of excess income. A CRAT
must make its annuity payment each year, even if the payment requires utilizing the CRAT's
principal. The CRAT payment is also a fixed amount, where the CRUT payment is a fixed
percentage of the trust's assets.
If an individual donates the underlying ownership interest of his personal residence to a charity,
but retains the right to live in the residence for the remainder of his life, how is the donor's
charitable deduction calculated? - correct answer ✔✔ A charitable deduction equal to the
present value of the remainder interest.
When a donor creates and funds a CLAT under the grantor trust provisions, how is the income
of the trust treated for income tax purposes each year? - correct answer ✔✔ The grantor
recognizes all of the trust's income on the taxable income.
Under what circumstances is a testamentary charitable transfer deductible from a decedent's
adjusted gross estate? - correct answer ✔✔ The bequest must be mandatory. The amount of
the bequest must be certain and the asset must be included in the gross estate.
