Skip to Main Content
GiftLaw Pro
Charitable Giving & Tax Information Service
Back to Gift Planning Website
GiftLaw Pro Home   >  Chapter 5 - Difficult Property Gifts  >  5.3 Excess Business Holdings  >  5.3.4 Unitrust and Annuity Trust Applications  >  Basic Quiz

Basic Quiz - 5.3.4 Unitrust and Annuity Trust Applications

1. Sec. 4943 does not apply the excess business holding (EBH) rules to charitable remainder trusts (CRTs).
           
2. CRTs are not subject to the excess business holding rules unless the trust document provides otherwise.
           
3. Rev. Rul. 72-395 contains exemplar language for CRTs that includes a prohibition against excess business holdings.
           
4. If a CRT is funded with C corporation stock, it is advisable to omit the excess business holding language provided in Rev. Rul. 72-395.
           
5. A charitable remainder trust may be funded with subchapter S stock.
           
6. If the CRT is created and contains the excess business holding rule, and the trust is funded with a business that owns and leases out land, the 5% penalty will apply if the trust has not divested itself of the property within five years.
           
7. Extensions to prevent the application of the 5% penalty are not available for a CRT.
           
8. A share of lease profits in a CRT makes the trust a partner in the enterprise and subjects it to the unrelated business income (UBI) rules.
           
9. Jerry Lee has a business that derives income from the lease of real property. Jerry Lee placed the business in a CRT with a term of 20 years. The CRT document does not contain the excess business holding prohibitions. If the property is not sold within five years, the CRT will be liable for a 5% tax on the excess business holding.
           
10. Jerry's good friend, Billy Riley, also creates a CRT. Billy funds his CRT with his interest in his C corporation. The CRT has the specimen language contained in Rev. Rul. 72-395. Billy's CRT has only five years to divest itself of the C corporation stock before the trust is subject to the excess business holding penalty.