CEA Charitable Giving Strategies 5 — Questions and Answers
Question 1: A donor contributes a remainder interest in their personal residence to charity while retaining the right to live there for life. This arrangement is called:
- A Charitable Gift Annuity secured by real estate
- A Retained Life Estate gift (Correct answer)
- A Charitable Remainder Unitrust funded with real property
- A Qualified Personal Residence Trust with charitable remainder
Correct answer: A Retained Life Estate gift
A Retained Life Estate allows a donor to contribute a remainder interest in a personal residence or farm to charity while retaining the right to use the property for life, generating a current income tax deduction.
Question 2: Under the excess business holdings rules of IRC Section 4943, a private foundation and its disqualified persons together may not own more than what percentage of a for-profit business?
- 5%
- 10%
- 20% (Correct answer)
- 35%
Correct answer: 20%
IRC Section 4943 limits combined holdings of a private foundation and its disqualified persons in any business enterprise to 20% (35% if a third party has effective control).
Question 3: Which of the following gifts to a Donor-Advised Fund does NOT qualify as a deductible contribution?
- Appreciated publicly traded securities
- Cash
- Tangible personal property for the DAF's related use
- A pledge to make a future cash contribution (Correct answer)
Correct answer: A pledge to make a future cash contribution
A pledge to make a future contribution is not deductible until the cash or property is actually transferred to the DAF; pledges do not constitute completed gifts.
Question 4: The Section 7520 rate used to value split-interest charitable gifts is equal to:
- The applicable federal rate for long-term obligations
- 120% of the federal midterm rate, rounded to the nearest 0.2% (Correct answer)
- The prime rate published by the Federal Reserve
- The 10-year Treasury note yield on the date of transfer
Correct answer: 120% of the federal midterm rate, rounded to the nearest 0.2%
The Section 7520 rate is 120% of the applicable federal midterm rate, rounded to the nearest two-tenths of one percent, and is published monthly by the IRS.
Question 5: A donor makes a conservation easement donation. To qualify for a charitable deduction under IRC Section 170(h), the easement must be granted to:
- Any state or local government unit, but not a private land trust
- A qualified organization (governmental unit or publicly supported organization) in perpetuity (Correct answer)
- A private foundation that specializes in environmental conservation
- A conservation organization for a minimum term of 30 years
Correct answer: A qualified organization (governmental unit or publicly supported organization) in perpetuity
A qualified conservation contribution must be made to a qualified organization—a governmental unit or publicly supported charity—and must be granted in perpetuity to protect specific conservation values.
Question 6: Which of the following best describes 'bunching' as a charitable giving strategy in the context of the current standard deduction?
- Combining multiple charitable gifts into a single transfer to reduce administrative costs
- Accelerating multiple years of charitable contributions into one tax year to exceed the standard deduction threshold (Correct answer)
- Grouping charitable organizations by cause to maximize the 60% AGI deduction limit
- Transferring assets to a Donor-Advised Fund to bundle investment returns tax-free
Correct answer: Accelerating multiple years of charitable contributions into one tax year to exceed the standard deduction threshold
Bunching involves concentrating several years' worth of charitable contributions into a single tax year so that total itemized deductions exceed the standard deduction, maximizing the tax benefit.
Question 7: A testamentary charitable bequest qualifies for what type of tax deduction in the donor's estate?
- An income tax deduction on the donor's final Form 1040
- An unlimited estate tax charitable deduction under IRC Section 2055 (Correct answer)
- A gift tax annual exclusion up to $18,000 per charity
- A deduction limited to 50% of the adjusted gross estate
Correct answer: An unlimited estate tax charitable deduction under IRC Section 2055
Under IRC Section 2055, charitable bequests qualify for an unlimited estate tax deduction with no percentage limitation, effectively removing the donated amount from the taxable estate.
CEA Charitable Giving Strategies 5
A donor contributes a remainder interest in their personal residence to charity while retaining the right to live there for life.
This arrangement is called: