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

Posted in blog.

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