3.10.2 Basic Quiz -- Four-Tier Accounting

Under the tax code, distributions from a charitable remainder unitrust must be made quarterly.

True False

Distribution amounts from a charitable remainder unitrust can be accurately predicted years in advance, since the unitrust percentage is stated in the trust document and cannot be changed.

True False

The phrase "four-tier accounting" refers to a state law that requires charitable remainder unitrusts to be taxed in a certain manner.

True False

The tiers in the four-tier accounting structure are ordinary income, short-term capital gain, long-term capital gain, and tax-free income.

True False

Through proper planning and investment, it is possible for a trustee to pay out capital gain and tax-free income before it pays out ordinary income.

True False

In short, the four-tier accounting system requires income beneficiaries to receive payments from assets that are subject to the highest tax rate.

True False

It is very common for charitable remainder unitrusts to pay out tax-free, or tier-three, income.

True False

Standard unitrusts are the most difficult type of charitable remainder trusts from an accounting and administration standpoint.

True False

The goal of many trustees of charitable remainder unitrusts is to invest the trust assets so that most of the unitrust payout will be characterized as capital-gain-type income.

True False

Under the four-tier accounting structure, if a straight or Type I charitable remainder unitrust produces no ordinary income or capital gain type income, it cannot make a payment for the year.