Skip to Main Content
GiftLaw Pro
Charitable Giving & Tax Information Service
Back to Gift Planning Website
GiftLaw Pro Home   >  Chapter 3 - Deferred Gifts  >  3.10 Unitrust  >  3.10.2 Four-Tier Accounting  >  Basic Quiz

Basic Quiz - 3.10.2 Four-Tier Accounting

1. Under the tax code, distributions from a charitable remainder unitrust must be made quarterly.
           
2. Distribution amounts from a charitable remainder unitrust can be accurately predicted years in advance, since the unitrust percentage is stated in the trust document and cannot be changed.
           
3. The phrase "four-tier accounting" refers to a state law that requires charitable remainder unitrusts to be taxed in a certain manner.
           
4. The tiers in the four-tier accounting structure are ordinary income, short-term capital gain, long-term capital gain, and tax-free income.
           
5. Through proper planning and investment, it is possible for a trustee to pay out capital gain and tax-free income before it pays out ordinary income.
           
6. In short, the four-tier accounting system requires income beneficiaries to receive payments from assets that are subject to the highest tax rate.
           
7. It is very common for charitable remainder unitrusts to pay out tax-free, or tier-three, income.
           
8. Standard unitrusts are the most difficult type of charitable remainder trusts from an accounting and administration standpoint.
           
9. The goal of many trustees of charitable remainder unitrusts is to invest the trust assets so that most of the unitrust payout will be characterized as capital-gain-type income.
           
10. Under the four-tier accounting structure, if a straight or Type I charitable remainder unitrust produces no ordinary income or capital gain type income, it cannot make a payment for the year.