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Posted September 13th, 2017

A Gift Planning Quiz

Here’s a quiz. Answers next time.

  1. Donor uses highly appreciated stock to pay a legally enforceable pledge. Why isn’t Donor treated as selling or exchanging the stock, so that Donor realizes a capital gain?

Hint:  If an individual pays a debt by transferring appreciated stock to the creditor, the individual is treated as selling or exchanging the stock and does realize gain.

  1. Donor, the CEO of ABC Corporation, a large and publicly traded company, owns some ABC stock that is subject to sale restrictions under S.E.C. Rule 144. Can Donor give this stock to a charity?
  2. The same individual as in #2 owns incentive stock options (ISOs) that allow her to buy ABC shares from ABC at a bargain price. Can she give any of her ISOs to charity?
  3. Donor owns real estate subject to a mortgage, but Donor is not personally liable on the mortgage debt. If Donor uses the real estate to fund a charitable remainder unitrust, will the funding of the trust be treated as a bargain sale?
  4. Donor promises (pledges) to create a $1 million charitable lead annuity trust that will pay $50,000 a year to Charity for 10 years. The annual payments will be used to discharge a previous pledge running from Donor to Charity for which Donor’s name was placed on a room. Will this arrangement violate the self-dealing prohibition?

Note:  If you get this one right you get an A+ on the quiz.

  1. Extra credit: Donor wants to create a sizable gift annuity at Charity for the express purpose of paying for a table at Charity’s upcoming gala dinner. Any tax problems here?

Join us next time for the answers to this quiz and see how you scored.

by Jon Tidd, Esq

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