Property Remainder Gifts

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Property Remainder Gifts

This quiz is part of the introductory curriculum for the graduate course Personal Financial Planning 5325 "Introduction to Charitable Planning" from Texas Tech University. For free downloads of the audio lectures and PowerPoint slides for this course, or to learn about the online Graduate Certificate in Charitable Financial Planning at Texas Tech University, go to www. EncourageGenerosity. Com


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Questions and Answers
  • 1. 
    The tax code provides a special exception for charitable gifts of remainder interests in homes and farms.  This is an exception from what general rule?
    • A. 

      Charitable gifts of partial interests, where the donor retains a portion of the property rights, may not normally be deducted.

    • B. 

      Charitable gifts of future interests must be valued based upon the current §7520 interest rate

    • C. 

      Valuation of gifts of future interests in houses must include a factor for the estimated depreciation of the property

    • D. 

      The gift of a home or farm to a charitable organization is not normally deductible

    • E. 

      The rental value of property given for the use of a charitable organization may not be deducted

  • 2. 
     A charitable gift of a partial interest may NOT be deducted if it is
    • A. 

      A remainder interest in a home

    • B. 

      An “undivided portion” of a property interest

    • C. 

      A charitable remainder trust

    • D. 

      The direct gift of a farm where the donor retains the mineral rights

    • E. 

      A qualified conservation easement

  • 3. 
    Which of the following is a charitable gift that generates an income tax charitable deduction?
    • A. 

      I give a charity the right to use my home for one month

    • B. 

      I sign and deliver a deed giving a remainder interest in 100 acres of farmland to a charity which will transfer full ownership of the property at my death

    • C. 

      I leave my farm to a charity in my will

    • D. 

      I sign an irrevocable trust agreement (not a charitable remainder trust) giving the cash equivalent of 100 acres of farmland to a charity effective at my death

    • E. 

      I give to charity a remainder interest in only the mineral rights to my farmland

  • 4. 
    Which of the following arrangements would not be considered a deductible remainder interest in a farm?
    • A. 

      Donor gifts by deed to charity the right to own the farm following donor’s death

    • B. 

      Donor gifts by deed to charity the right to own the farm after 20 years

    • C. 

      Donor gifts by deed to charity the right to own the farm following the death of the donor and the donor’s spouse

    • D. 

      Donor gifts by deed to charity the right to own the farm following the death of the donor’s 4 year old grandson Bob.

    • E. 

      Donor gifts by deed to charity the right to use the farm until the donor’s death

  • 5. 
     In what ways is a remainder interest in real estate similar to a will?
    • A. 

      A remainder is irrevocable

    • B. 

      A remainder creates an immediate property right in the named recipient

    • C. 

      A remainder can be immediately sold by the holder to another person

    • D. 

      A remainder can be recorded by a deed

    • E. 

      A remainder can be used to transfer real property to a charity at death

  • 6. 
    After recording a deed giving a remainder interest in my home, effective at my death, to a charity, I learn that my child would like to live in the home after my death.  How do I alter the remainder interest gift so that my child can live in the home after my death?
    • A. 

      Add a codicil to my last will and testament directing that the home must not be sold unless agreed to by my child

    • B. 

      Record a life estate deed in favor of my child giving the right to the child to live in the home for the child’s life

    • C. 

      Transfer my property ownership interest into a trust with instructions to the independent trustee to permit the child to live in the home after my death

    • D. 

      Revoke the remainder interest by recording a revocation in the recorder of deeds office

    • E. 

      Remainder interests are not revocable, so the gift cannot be altered

  • 7. 
    Which of the following would qualify as farmland for purposes of making a deductible remainder interest charitable gift?
    • A. 

      20 acres of tillable land that the donor currently uses as an airport runway for private planes

    • B. 

      A 100 acre industrial park housing manufacturing and shipping companies

    • C. 

      A 100 acre dairy farm purchased by the donor 13 months ago that has been out of use for two years, but which can be placed back into agricultural production at any time

    • D. 

      A 10 acre segment from a 1,000 acre cotton farm where the 10 acres consists of ditches, brush land, a dumping area, and highway department right-of-way, none of which can be used to raise crops or livestock

    • E. 

      A 10 acre segment consisting of pasture land and a dairy barn leased to a corporation that uses it to graze and milk cattle, where the 10-acre segment is part of a 1,000 acre farm.

  • 8. 
    Which of the following remainder interests in a farm would not be deductible if given to a charity?
    • A. 

      A remainder interest giving a 10 acre segment of pastureland taken from a 300 acre cattle ranch

    • B. 

      A remainder interest giving a right to use the property for 20 years following the death of the donor

    • C. 

      A remainder interest where, following the death of the donor, the charity will own a 20% undivided interest in the farm as a tenant in common with the donor’s children

    • D. 

      A remainder interest in 10 acres of a solid rock shelf (without any dirt or vegetation) which has been used as a feedlot to raise hogs for several years

    • E. 

      A remainder interest in an operating farm where, after the death of the donor, the donor’s children will receive the house, the barns, and all timber land and the charity will receive only 5 acres of pasture land

  • 9. 
    Mary Donor owns a 5,000 acre cotton farm in West Texas.  Sarah Smith, and unrelated person, inherited the mineral rights to the farm many years ago.  Both Mary and Sarah are interested in benefiting Texas Tech University.  Which of the following would not generate a deductible charitable gift?
    • A. 

      Mary gives a remainder interest in the farm, without the mineral rights, to Texas Tech University

    • B. 

      Sarah gives a remainder interest in the mineral rights to Texas Tech University

    • C. 

      Mary purchases Sarah’s mineral rights and gives a remainder interest in the farm, including mineral rights, to Texas Tech University

    • D. 

      Sarah purchases Mary’s farm and gives a remainder interest in the farm, including mineral rights, to Texas Tech University

    • E. 

      Mary gives a remainder interest that will transfer the farm, without mineral rights, 50% to Texas Tech University and 50% to her son Joshua, to be held as tenants in common.

  • 10. 
    Calculating the deduction for a remainder interest in farmland would involve all of the following except
    • A. 

      Finding the applicable §7520 interest rate

    • B. 

      Identifying the donor’s age

    • C. 

      Locating the remainder valuation percentage or ratio from IRS publication 1457

    • D. 

      Estimating the useful life of the farmland itself

    • E. 

      Estimating the current fair market value of the farmland

  • 11. 
    In October of 2010, you hear the announcement that the §7520 rates are lower than they have ever been in history.  The impact of this on the deduction value of a remainder interest charitable gift of a home is
    • A. 

      Negative as the deduction will now be lower due to the cheap availability of money

    • B. 

      Positive in that it decreases the mortgage costs for refinancing a home

    • C. 

      Positive as the value of charitable deductions for remainder interests varies inversely with interest rates (they move in opposite directions)

    • D. 

      Positive as the estimated life expectancy tables for donors will decrease, thus increasing the value of the charitable deduction

    • E. 

      Positive as the value of charitable deductions for remainder interests is positively correlated with interest rates (they move in the same direction)

  • 12. 
    The dollar value of a remainder interest gift in farmland (with retained life interest) made by a 59 year old donor when valued at the 2.0% §7520 rate of Oct 2010, as compared with the 11.6% rate of May 89 would increase by
    • A. 

      About 2%

    • B. 

      About 8-9%

    • C. 

      About 11.6%

    • D. 

      About 100%

    • E. 

      About 400%

  • 13. 
    What are some potential advantages of leaving farmland to charity by a remainder interest instead of leaving farmland to charity in a will?
    • A. 

      The donor can receive a large income tax deduction when giving a remainder interest, but not when giving by will

    • B. 

      The donor can receive a large estate tax deduction when giving a remainder interest, but not when giving by will

    • C. 

      Prior to death, the donor can change which charity will receive the farmland after giving a remainder interest gift

    • D. 

      Deductible gifts of remainder interests can be completed by means of a simple contract agreement

    • E. 

      The donor can continue to use the farmland during his or her life after giving a remainder interest to charity

  • 14. 
    Which of the following is NOT a reason why a donor might choose to give separate remainder interests in portions of farmland over several years rather than making a single gift of a remainder interest in the entire farm immediately?
    • A. 

      Gifting in portions each year allows for larger deductions to the extent that the farmland has increased in value each year

    • B. 

      Gifting in portions may allow the donor to avoid exceeding the income limit maximum thresholds for charitable giving in a particular year

    • C. 

      Gifting in portions could allow the donor to gift only to the where remaining income is taxed at a lower marginal tax bracket

    • D. 

      Gifting in portions could avoid the risk of losing the carryover deduction at death if a carryover deduction would otherwise be created due to exceeding the income limitations on charitable giving

    • E. 

      Gifting in portions allows the donor to take the charitable income tax deduction earlier than making a single gift of the remainder interest in the entire farm

  • 15. 
    Why might a child benefit from a wealthy parent who gives a remainder interest in a farm to a charity and uses the value of the tax benefit to pay for life insurance in an Irrevocable Life Insurance Trust (ILIT) instead of simply leaving a gift to the charity in the will?
    • A. 

      Life insurance from an ILIT passes to the children estate tax free, but the farm would not

    • B. 

      The family farm will pass to the child estate tax free

    • C. 

      Life insurance will always appreciate faster than farmland

    • D. 

      With a remainder interest, but not a will, the farm will pass to the charity estate tax free

    • E. 

      Farmland will always appreciate faster than life insurance

  • 16. 
    Which of the following would NOT qualify for a deductible charitable gift of a remainder interest in a personal residence?
    • A. 

      A boat with bathroom, cooking, and sleeping facilities where the donor resides two weeks per year

    • B. 

      A second home on a lake where the donor live four weeks per year

    • C. 

      A vacation home in the mountains owned by the donor and used only by the donor’s children six weeks per year

    • D. 

      A condominium owned by the donor that is her primary residence

    • E. 

      A co-op apartment home owned by the donor in New York City where the donor resides every other weekend

  • 17. 
    A 59 year old donor is considering giving the remainder interest (and retaining the life estate) in $200,000 of unimproved farmland or in her $200,000 personal residence to her favorite charity.  Which of the following is true?
    • A. 

      The remainder interest gift in the farmland will generate a greater deduction because it has fewer depreciable elements

    • B. 

      The remainder interest gift in the farmland will generate a greater deduction because it has more depreciable elements

    • C. 

      The remainder interest gift in the farmland will generate a deduction equal to the remainder interest gift in the house

    • D. 

      The remainder interest gift in the house will generate a greater deduction because it has fewer depreciable elements

    • E. 

      The remainder interest gift in the house will generate a greater deduction because it has more depreciable elements

  • 18. 
    In calculating the useful life of a personal residence for purposes of estimating depreciation which of the following is probably NOT a reasonable approach?
    • A. 

      Use a qualified appraiser to estimate the useful life of the house

    • B. 

      Use a qualified structural engineer to estimate the useful life of the house

    • C. 

      Use the IRS example of 45 year life span for a personal residence if the home is new

    • D. 

      Use the IRS depreciation tables for residential rental property indicating a useful life of 27.5 years

    • E. 

      Use examples of antebellum homes to show the residential property can last over two centuries if properly maintained and assume a similar future for the personal residence at issue

  • 19. 
    A 59 year old donor is giving a life estate in his $100,000 of farmland to a charity while retaining the remainder interest which he plans to distribute to his children (his life is the measuring life).  Assuming a §7520 interest rate of 2.4%, IRS Table S reflects the following numbers for age 59: Annuity = 16.4213, Life Estate = .39411, Remainder = .60589.  What is the correct charitable deduction for this gift?
    • A. 

      $0

    • B. 

      $39,411

    • C. 

      $60,589

    • D. 

      $100,000

    • E. 

      $160,000

  • 20. 
    Which of the following would not be an available option for the donor and the nonprofit if she gives a remainder interest in her home to a charitable organization and later decides to leave the home?
    • A. 

      Rent the property

    • B. 

      Sell the life estate to an investor or property manager

    • C. 

      Agree with the charity to a joint sale and divide the proceeds

    • D. 

      Give the life estate to the charity in exchange for a gift annuity

    • E. 

      Complete a bargain sale where the charity sells the remainder interest back to the donor for 50% of its current value, thereby allowing the donor to sell the property with a fee simple title.

  • 21. 
    Which of the following is NOT a common law requirement that a donor who gives a remainder interest in a home, but retains the life estate, is required to follow?
    • A. 

      The donor (“life tenant”) must maintain the home

    • B. 

      The donor (“life tenant”) must insure the home

    • C. 

      The donor (“life tenant”) must pay taxes the home

    • D. 

      The donor (“life tenant”) must improve the home

    • E. 

      The donor (“life tenant”) must have leaks in the roof of the home repaired

  • 22. 
    Which of the following is an expense that the donor could deduct a portion of as a charitable gift after making a transfer of a remainder interest in a home to a charitable organization?
    • A. 

      Payments for fire insurance on the home

    • B. 

      Payments for local property taxes on the home

    • C. 

      Payments for fixing a leak in the roof

    • D. 

      Payments for building an additional bedroom onto the home

    • E. 

      Payments for to insure the home against wind damage

  • 23. 
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