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GiftLaw Pro Home   >  Chapter 5 - Difficult Property Gifts  >  5.3 Excess Business Holdings  >  5.3.3 Lead Trusts and Excess Business Holdings  >  Basic Quiz

Basic Quiz - 5.3.3 Lead Trusts and Excess Business Holdings

1. Lead trusts are exempt from the excess business holdings rule.
           
2. Applying the excess business holdings rule to lead trusts prevents charitable organizations from receiving unrelated business income.
           
3. If the excess business holdings rule did not apply to lead trusts, business owners would be able to run their business within the trust with payment of very little or possibly no taxes.
           
4. If the charitable deduction for the value of the lead trust income interest is 60% or more, the excess business holdings rule does not apply to the lead trust.
           
5. Ms. Marple placed the stock of her private investigation business into a charitable lead trust. Ms. Marple's charitable deduction equals 59.9%. The lead trust is subject to the excess business holdings penalty because the IRS rounds up percentages for application of the 10% penalty.
           
6. Because a lead trust is a taxable trust, it cannot qualify for the 100% charitable deduction for the lead payments that are made to a charity.
           
7. The five-year grace period for excess business holdings is not applied to charitable lead trusts.
           
8. If a donor transfers all of the stock in his or her closely held corporation to a lead trust that will last for 4.99 years, the trust will not be subject to excess business holdings tax.
           
9. If an LLC or a partnership that operates an active trade or business is transferred into a lead trust, the unrelated business income causes the lead trust to lose its 100% deduction for the lead payments to charity.
           
10. A lead trust is a taxable entity.