STEP Charitable Planning & Philanthropy 1

Question 1

In a Charitable Remainder Trust (CRT), what happens to the trust assets at the end of the trust term?

Accepted Answer

The remaining assets pass to the designated charitable beneficiary

Answer

A CRT is designed so that a non-charitable beneficiary receives income for a period, after which the remaining corpus passes irrevocably to the designated charitable remainder beneficiary.

Question 2

What distinguishes a Charitable Remainder Annuity Trust (CRAT) from a Charitable Remainder Unitrust (CRUT)?

Accepted Answer

A CRAT pays a fixed dollar amount annually, while a CRUT pays a fixed percentage of trust assets valued each year

Answer

A CRAT distributes a fixed dollar amount each year regardless of asset performance, whereas a CRUT distributes a fixed percentage of the trust's fair market value as revalued annually.

Question 3

What is the primary planning advantage of a Donor-Advised Fund (DAF) compared to making direct charitable gifts each year?

Accepted Answer

The donor receives an immediate income tax deduction and can recommend grant distributions to charities over time

Answer

A DAF allows a donor to make an irrevocable, deductible contribution in a high-income year and then advise the sponsoring organization on grants to charities over future years.

Question 4

For a private foundation, which of the following counts as a 'qualifying distribution' toward the mandatory 5% annual payout requirement?

Accepted Answer

Grants to public charities and reasonable operating expenses for charitable purposes

Answer

Qualifying distributions include grants to public charities and reasonable and necessary administrative expenses directly for charitable purposes; contributions to DAFs generally do not count unless special rules are met.

Question 5

Under IRC Section 4941, which of the following is a recognized exception to the self-dealing rules for private foundations?

Accepted Answer

Paying reasonable compensation to a disqualified person for necessary personal services rendered to the foundation

Answer

IRC Section 4941(d)(2)(E) provides an exception permitting payment of reasonable and necessary compensation to disqualified persons for personal services that are necessary for carrying out the foundation's exempt purposes.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Charitable Planning & Philanthropy 1