STEP Charitable Planning & Philanthropy 2 — Questions and Answers
Question 1: At what minimum age may an IRA owner make a Qualified Charitable Distribution (QCD) directly from the IRA to an eligible charity?
- 59½
- 65
- 70½ (Correct answer)
- 73
Correct answer: 70½
Under IRC Section 408(d)(8), an IRA owner who has reached age 70½ may exclude up to $105,000 (indexed) per year from gross income by directing a QCD directly to an eligible charity.
Question 2: Which type of charitable trust requires the trustee to pay a fixed annuity amount to charity for a specified term, with the remainder passing to non-charitable beneficiaries?
- Charitable Remainder Annuity Trust (CRAT)
- Charitable Lead Annuity Trust (CLAT) (Correct answer)
- Grantor Retained Annuity Trust (GRAT)
- Net Income Makeup Charitable Remainder Unitrust (NIMCRUT)
Correct answer: Charitable Lead Annuity Trust (CLAT)
A Charitable Lead Annuity Trust pays a fixed annuity to one or more charities during the trust term, and at termination the remaining assets pass to the grantor's heirs or other non-charitable beneficiaries.
Question 3: For a donated conservation easement to qualify for a charitable deduction under IRC Section 170(h), the contributed interest must:
- Be a fee simple transfer of the entire property to the charity
- Be a qualified real property interest exclusively for one of the four enumerated conservation purposes (Correct answer)
- Be a temporary restriction lasting at least 10 years
- Be pre-approved by the relevant state conservation agency
Correct answer: Be a qualified real property interest exclusively for one of the four enumerated conservation purposes
Section 170(h) requires that the donation be a 'qualified real property interest' (fee simple, remainder, or perpetual restriction) contributed exclusively for conservation purposes such as habitat protection, scenic enjoyment, historic preservation, or open space.
Question 4: In a Pooled Income Fund, an income beneficiary receives distributions based on:
- A fixed annuity amount determined at the time of the gift
- A fixed percentage of the fund's total assets regardless of actual income
- A pro-rata share of the fund's actual net income, proportional to the donor's units of participation (Correct answer)
- The fund's total earnings divided equally among all participating donors
Correct answer: A pro-rata share of the fund's actual net income, proportional to the donor's units of participation
Each donor to a Pooled Income Fund receives units of participation, and distributions equal the donor's proportionate share of the fund's actual net income earned each year.
Question 5: What is the key legal distinction between a Type I and a Type III Supporting Organization under IRC Section 509(a)(3)?
- Type I may support private foundations; Type III may support only public charities
- Type I is operated, supervised, or controlled BY the supported organization; Type III is operated IN CONNECTION WITH the supported organization (Correct answer)
- Type I has no restrictions on donor involvement; Type III requires complete donor independence
- Type I serves exactly one supported organization; Type III may serve an unlimited number
Correct answer: Type I is operated, supervised, or controlled BY the supported organization; Type III is operated IN CONNECTION WITH the supported organization
The Treasury Regulations classify supporting organizations by the nature of the relationship: Type I (control-by), Type II (supervised or controlled in connection with), and Type III (operated in connection with), each with increasing operational independence from the supported charity.
Question 6: Unrelated Business Income Tax (UBIT) does NOT apply to which of the following receipts by a tax-exempt organization?
- Operating a commercial restaurant open to the general public year-round
- Royalties received from licensing the organization's trademark or logo to a third party (Correct answer)
- Net income from a retail gift shop regularly open to the public
- Revenue from a trade show that directly competes with for-profit businesses
Correct answer: Royalties received from licensing the organization's trademark or logo to a third party
IRC Section 512(b)(2) specifically excludes royalties (including amounts received for the use of intangible property) from the definition of unrelated business taxable income.
Question 7: What minimum charitable remainder percentage must be present in a Charitable Remainder Trust at the time of creation for the trust to qualify under IRC Section 664?
- 5%
- 7%
- 10% (Correct answer)
- 15%
Correct answer: 10%
Under the Section 664 regulations, the actuarially determined present value of the charitable remainder interest must equal at least 10% of the initial net fair market value of all property transferred to the trust.
STEP Charitable Planning & Philanthropy 2
At what minimum age may an IRA owner make a Qualified Charitable Distribution (QCD) directly from the IRA to an eligible charity?