CTFA Charitable Planning and Philanthropy 2

Question 1

What is the minimum annual distribution requirement for a private non-operating foundation under IRC Section 4942?

Accepted Answer

5% of the average fair market value of net investment assets

Answer

IRC Section 4942 requires private non-operating foundations to distribute at least 5% of the average fair market value of their net investment assets each year for charitable purposes.

Question 2

Under IRC Section 4941, which transaction between a private foundation and a disqualified person constitutes prohibited self-dealing?

Accepted Answer

Selling foundation-owned property to a substantial contributor at fair market value

Answer

Under Section 4941, any sale or exchange of property between a private foundation and a disqualified person constitutes prohibited self-dealing, regardless of whether the price reflects fair market value.

Question 3

A Pooled Income Fund is structurally most similar to which type of investment vehicle?

Accepted Answer

A mutual fund that allocates income to investors proportionally based on units held

Answer

A Pooled Income Fund maintained by a public charity commingles contributions from multiple donors and pays each donor a proportionate share of the fund's actual net income, similar to how a mutual fund allocates earnings.

Question 4

Under IRC Section 4943, what percentage limit generally applies to the combined holdings of a private foundation and all its disqualified persons in any business enterprise?

Accepted Answer

20% of voting stock or profits interest in the business enterprise

Answer

Section 4943 generally limits the combined business holdings of a private foundation and its disqualified persons to 20% of the voting stock (or profits interest) of any business enterprise.

Question 5

A 'zeroed-out' Charitable Lead Annuity Trust (CLAT) is primarily designed to accomplish which estate planning objective?

Accepted Answer

Transfer appreciation above the Section 7520 hurdle rate to heirs with minimal gift or estate tax

Answer

A zeroed-out CLAT is structured so the present value of the annuity payments to charity equals the initial contribution (producing a zero taxable gift), meaning any investment growth above the Section 7520 rate passes to heirs gift-tax free.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA Charitable Planning and Philanthropy 2