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GiftLaw Pro Home   >  Chapter 3 - Deferred Gifts  >  3.1 Annuity Remainder Trust  >  3.1.2 Four-Tier Accounting  >  Basic Quiz

Basic Quiz - 3.1.2 Four-Tier Accounting

1. 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.
           
2. There is only one capital gains rate.
           
3. 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.
           
4. 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.
           
5. The four-tier method describes the taxation of payouts from a charitable remainder trust.
           
6. The order of payments under the four-tier accounting system is ordinary income, capital gain, return of principal and then tax-free.
           
7. After each distribution from the trust, the trustee must at that time apply the four-tier method.
           
8. There is no prudent investment concern when investing the entire trust corpus in tax-free municipal bonds.
           
9. The annuity trust payout is simple to calculate.
           
10. 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.