AEP Charitable Planning & Philanthropy 3

Question 1

An estate planner recommends a Charitable Lead Annuity Trust (CLAT) to a client when interest rates are LOW primarily because:

Accepted Answer

Lower rates increase the projected remainder value passing to heirs if the trust outperforms the §7520 rate

Answer

In a low-rate environment, the §7520 hurdle rate is low, making it easier for the CLAT's investments to exceed that rate—any outperformance accumulates estate-tax-free for the heirs, maximizing the wealth transfer benefit.

Question 2

Under the concept of 'bargain sale' to a charity, which of the following correctly describes the tax treatment?

Accepted Answer

Gain is recognized proportionally based on the ratio of the sale price to the fair market value

Answer

In a bargain sale, the donor's adjusted basis is allocated between the sold and donated portions proportionally, so gain is recognized on the sold portion in the ratio of sale price to fair market value.

Question 3

Which of the following describes a 'net income with makeup charitable remainder unitrust' (NIMCRUT)?

Accepted Answer

A CRUT that pays the lesser of net income or the unitrust percentage, with a makeup account for deficiencies paid in future years

Answer

A NIMCRUT pays the lesser of net income or the stated unitrust percentage each year, and maintains a 'makeup account' so deficiencies from low-income years can be paid out when trust income exceeds the unitrust percentage in later years.

Question 4

A client wants to make a charitable bequest under their will but also wants the estate to retain flexibility to redirect assets to different charities. Which planning technique is most appropriate?

Accepted Answer

Establishing a testamentary donor-advised fund

Answer

A testamentary DAF allows the estate to direct assets to a sponsoring organization at death, with the family or designated advisors retaining the ability to recommend grants to various public charities over time.

Question 5

For estate tax purposes, a charitable bequest to a qualifying organization reduces the taxable estate because:

Accepted Answer

IRC Section 2055 allows an unlimited deduction for qualifying charitable bequests

Answer

IRC §2055 provides an unlimited estate tax deduction for property passing to qualifying charitable organizations, meaning there is no ceiling on the amount deductible from the gross estate.

(AEP) Accredited Estate Planner Practice Test

(AEP) Accredited Estate Planner Practice Test

AEP Charitable Planning & Philanthropy 3