CEA Charitable Giving Strategies 2 — Questions and Answers
Question 1: A donor transfers appreciated stock worth $50,000 (basis $10,000) to a Charitable Remainder Unitrust (CRUT). What is the primary tax advantage of this approach versus selling the stock first?
- The donor avoids immediate capital gains tax on the full $40,000 appreciation (Correct answer)
- The donor receives a 100% income tax deduction equal to the full $50,000
- The trust pays no income tax on the sale proceeds
- The donor can reclaim the principal after 10 years
Correct answer: The donor avoids immediate capital gains tax on the full $40,000 appreciation
Contributing appreciated stock to a CRUT allows the trust to sell the stock and reinvest the full proceeds without the donor recognizing capital gains at the time of contribution.
Question 2: Which charitable giving vehicle allows a donor to make an irrevocable gift, receive an immediate income tax deduction, recommend grants over time, and avoid managing a private foundation?
- Charitable Lead Annuity Trust
- Donor-Advised Fund (Correct answer)
- Pooled Income Fund
- Charitable Remainder Unitrust
Correct answer: Donor-Advised Fund
A Donor-Advised Fund provides an immediate deduction upon contribution while allowing the donor to recommend grants to charities over time without the administrative burden of a private foundation.
Question 3: Under IRC Section 170, what is the AGI limitation for cash contributions to a public charity?
- 30%
- 50%
- 60% (Correct answer)
- 100%
Correct answer: 60%
Cash contributions to public charities are deductible up to 60% of the donor's adjusted gross income, with a 5-year carryforward for excess amounts.
Question 4: A Charitable Lead Annuity Trust (CLAT) pays a fixed annuity to charity for a term of years, after which the remainder passes to whom?
- The donor's estate
- A public charity of the donor's choice
- The donor's heirs or other non-charitable beneficiaries (Correct answer)
- The IRS as estate tax
Correct answer: The donor's heirs or other non-charitable beneficiaries
In a CLAT, charity receives the income stream during the trust term, and the remainder ultimately passes to the donor's heirs or other non-charitable remainder beneficiaries.
Question 5: What is the annual exclusion for QCD (Qualified Charitable Distribution) from an IRA for taxpayers age 70½ or older in 2024?
- $50,000
- $75,000
- $100,000 (Correct answer)
- $150,000
Correct answer: $100,000
Taxpayers age 70½ or older may make QCDs of up to $100,000 per year directly from their IRA to qualified charities, satisfying RMD requirements without including the distribution in gross income.
Question 6: A private foundation is subject to an excise tax on net investment income under IRC Section 4940. What is the current rate of this tax?
- 1.39% (Correct answer)
- 2%
- 5%
- 10%
Correct answer: 1.39%
The Tax Cuts and Jobs Act of 2017 replaced the variable 1%/2% rate with a flat 1.39% excise tax on net investment income of private foundations.
Question 7: Which strategy allows a donor to contribute to charity via a bequest that is fully revocable during the donor's lifetime and does not qualify for a current income tax deduction?
- Charitable Remainder Trust
- Charitable bequest in a will (Correct answer)
- Charitable Gift Annuity
- Donor-Advised Fund
Correct answer: Charitable bequest in a will
A charitable bequest in a will is revocable during the donor's lifetime, qualifies for an estate tax deduction, but provides no current income tax deduction.
CEA Charitable Giving Strategies 2
A donor transfers appreciated stock worth $50,000 (basis $10,000) to a Charitable Remainder Unitrust (CRUT).
What is the primary tax advantage of this approach versus selling the stock first?