Friday, May 3, 2024
Deferred Gifts

3.1.2 Basic Quiz -- Four-Tier Accounting
If a donor funds an annuity trust with highly appreciated long-term capital gains stock and the trustee reinvests the trust corpus in tax-free municipal bonds, the payout to the donor would immediately be tax free.
     True      False
There is only one capital gains rate.
     True      False
If an annuity trust was funded with cash and the payout rate from the annuity was high, so that part of the amounts paid to the beneficiary were from principal, a portion of the amount paid from principal would be tax-free to the beneficiary.
     True      False
If a donor funds an annuity trust with property that was depreciated by the straight-line method, part of the annuity payout may be taxed at the capital gains rate for depreciated property.
     True      False
The four-tier method describes the taxation of payouts from a charitable remainder trust.
     True      False
The order of payments under the four-tier accounting system is ordinary income, capital gain, return of principal and then tax-free.
     True      False
After each distribution from the trust, the trustee must at that time apply the four-tier method.
     True      False
There is no prudent investment concern when investing the entire trust corpus in tax-free municipal bonds.
     True      False
The annuity trust payout is simple to calculate.
     True      False
If the trustee of an annuity trust invests in a commercial annuity, the payouts from the trust applicable to the commercial annuity will be taxed as ordinary income.
     True      False



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