AEP Advanced Estate Planning Techniques 3

Question 1

A Charitable Remainder Unitrust (CRUT) differs from a Charitable Remainder Annuity Trust (CRAT) primarily because the CRUT pays:

Accepted Answer

A fixed percentage of the trust's annually revalued assets

Answer

A CRUT pays a fixed percentage (at least 5%) of the trust's fair market value as revalued annually, so distributions fluctuate with asset performance, unlike the fixed dollar payments of a CRAT.

Question 2

What is the minimum required payout rate for a Charitable Remainder Trust to qualify under IRC Section 664?

Accepted Answer

5% of net fair market value

Answer

IRC §664 requires that a CRT pay at least 5% of net fair market value annually to qualify as a charitable remainder trust.

Question 3

A Charitable Lead Annuity Trust (CLAT) is most effective for wealth transfer when the IRS Section 7520 rate is:

Accepted Answer

Low, because the charity's interest is worth more and the remainder is larger

Answer

A low §7520 rate means less is assumed to be earned by the trust, so more value is attributed to the annuity payments to charity, leaving a larger remainder to pass to heirs at a reduced gift tax value.

Question 4

Which trust structure allows a donor to contribute assets, receive a current charitable deduction, and recommend (but not direct) grants to charities over time?

Accepted Answer

Donor-advised fund

Answer

A donor-advised fund provides an immediate charitable deduction at contribution while allowing the donor to recommend grants to qualifying charities over time, without the administrative burden of a private foundation.

Question 5

The 'estate inclusion' problem unique to private foundations involves which transfer tax issue?

Accepted Answer

Retained control by the founder can cause estate inclusion under §2036

Answer

If a foundation founder retains significant control over foundation assets, the IRS may argue that §2036 requires inclusion of those assets in the founder's taxable estate.

(AEP) Accredited Estate Planner Practice Test

(AEP) Accredited Estate Planner Practice Test

AEP Advanced Estate Planning Techniques 3