CAP CAP Philanthropic Vehicles & Structures 2 — Questions and Answers
Question 1: A donor wants to establish a permanent endowment that generates annual grants to community nonprofits. Which vehicle is most appropriate?
- Donor Advised Fund at a community foundation (Correct answer)
- Charitable Gift Annuity
- Charitable Remainder Unitrust
- Retained Life Estate
Correct answer: Donor Advised Fund at a community foundation
A DAF at a community foundation is ideal for creating a permanent endowment-like structure that generates ongoing grant recommendations to local nonprofits.
Question 2: What distinguishes a Charitable Remainder Unitrust (CRUT) from a Charitable Remainder Annuity Trust (CRAT)?
- A CRUT pays a fixed dollar amount; a CRAT pays a fixed percentage of annually revalued assets
- A CRUT pays a fixed percentage of annually revalued assets; a CRAT pays a fixed dollar amount (Correct answer)
- A CRUT benefits only public charities; a CRAT can benefit private foundations
- A CRUT requires a minimum 10% remainder; a CRAT has no minimum remainder requirement
Correct answer: A CRUT pays a fixed percentage of annually revalued assets; a CRAT pays a fixed dollar amount
A CRUT pays a fixed percentage of the trust's annually revalued assets (so income fluctuates), while a CRAT pays a fixed dollar annuity regardless of trust performance.
Question 3: A private foundation that converts to a public charity status to avoid private foundation rules is known as a:
- Type III Supporting Organization
- Private Operating Foundation
- Reorganized Charity
- Terminating Foundation (Correct answer)
Correct answer: Terminating Foundation
A private foundation can terminate its status by distributing all assets to public charities or by converting to a public charity, a process called foundation termination.
Question 4: Which of the following is an advantage of a Donor Advised Fund over a private foundation for most donors?
- DAFs allow anonymous grants; private foundations must disclose all grantees publicly
- DAFs have no minimum distribution requirements; private foundations must distribute 5% annually (Correct answer)
- DAFs can engage in self-dealing with the donor; private foundations cannot
- DAFs pay higher investment returns due to pooled management
Correct answer: DAFs have no minimum distribution requirements; private foundations must distribute 5% annually
DAFs do not have mandatory annual distribution requirements, giving donors flexibility on timing, while private foundations must distribute at least 5% of assets annually.
Question 5: Under the SECURE Act 2.0, what is the maximum annual amount a donor aged 70½ or older can transfer directly from an IRA to a charity via a Qualified Charitable Distribution (QCD)?
- $50,000
- $100,000
- $105,000 (Correct answer)
- $200,000
Correct answer: $105,000
Under SECURE Act 2.0, the QCD limit is indexed for inflation; for 2024, it is $105,000 per individual, up from the previous $100,000 cap.
Question 6: A family wants ongoing involvement in grantmaking with maximum control, is willing to file Form 990-PF, and plans to fund it with $5 million. Which structure best fits?
- Donor Advised Fund at a national sponsor
- Charitable Gift Annuity
- Private Family Foundation (Correct answer)
- Pooled Income Fund
Correct answer: Private Family Foundation
A private family foundation offers maximum donor control over grantmaking, investment, and programming, appropriate for donors with substantial assets who want an active philanthropic role.
CAP CAP Philanthropic Vehicles & Structures 2
A donor wants to establish a permanent endowment that generates annual grants to community nonprofits.
Which vehicle is most appropriate?