CEA Charitable Giving Strategies 3

Question 1

A Charitable Gift Annuity (CGA) differs from a Charitable Remainder Trust primarily because:

Accepted Answer

A CGA is a contract between the donor and the charity, not a trust arrangement

Answer

A CGA is a simple contractual arrangement directly between the donor and the charity, whereas a CRT is a separate trust entity with its own legal existence.

Question 2

What is the primary difference between a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT)?

Accepted Answer

A CRAT pays a fixed dollar amount annually; a CRUT pays a fixed percentage of assets revalued each year

Answer

A CRAT pays a fixed annuity amount established at inception, while a CRUT pays a fixed percentage of the trust's fair market value as revalued annually, making CRUT payments variable.

Question 3

The 'Five Percent Test' applicable to Charitable Remainder Trusts requires that:

Accepted Answer

The annual payout to the income beneficiary must be at least 5% of initial net fair market value

Answer

IRC Section 664 requires that the annual payout rate for a CRT must be at least 5% of the initial net fair market value of the trust assets.

Question 4

Under the bargain sale rules, when a donor sells property to a charity for less than fair market value, the donor must recognize gain based on:

Accepted Answer

A pro-rata allocation of basis between the charitable and sale portions

Answer

In a bargain sale, the donor's adjusted basis is allocated pro-rata between the gift portion and the sale portion, and gain is recognized on the sale portion based on the allocated basis.

Question 5

Which of the following best describes the 'Flip CRUT' (Flip Charitable Remainder Unitrust)?

Accepted Answer

A CRUT that converts from a net income unitrust to a standard unitrust upon a triggering event

Answer

A Flip CRUT operates as a net income unitrust until a specified triggering event (such as sale of illiquid assets), then converts to a standard unitrust paying the full unitrust percentage.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Charitable Giving Strategies 3