Risk Assessment & Underwriting Flashcards
7 cards from real CAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Underwriting flashcards as text
Under the American Council on Gift Annuities (ACGA) guidelines, what is the primary purpose of the suggested maximum payout rates?
Answer: To ensure the charity retains a projected residuum of approximately 50% of the gift
ACGA rates are designed so that, based on actuarial assumptions, the charity will retain roughly 50 cents on the dollar after all annuity payments are made.
A real estate gift to a charitable remainder trust poses which underwriting challenge not present with publicly traded securities?
Answer: Difficulty valuing and liquidating the asset to fund distributions
Real estate is illiquid and requires appraisal; the trustee may struggle to generate cash for required trust distributions until the property is sold.
The 10% minimum remainder rule for charitable remainder trusts means:
Answer: The present value of the charitable remainder must be at least 10% of the initial contribution
IRC §664 requires that the present value of the charity's remainder interest, calculated at inception using the applicable federal rate, must equal at least 10% of the initial contribution.
When assessing the suitability of a charitable lead annuity trust (CLAT) for a donor, the advisor's primary risk consideration is:
Answer: The risk that trust assets underperform the Section 7520 rate, leaving little for heirs
A CLAT passes remainder to heirs; if the trust earns less than the §7520 rate used to calculate the charitable deduction, heirs receive a diminished inheritance.
Which of the following BEST describes 'unrelated business income tax' (UBIT) risk within a charitable remainder trust?
Answer: Income from debt-financed property or certain business activities may be taxed inside the trust
CRTs lose their tax-exempt status for any year they have UBIT, which can arise from debt-financed assets or active business income within the trust.
In assessing a donor's capacity to make a large irrevocable charitable gift, which factor is MOST critical to evaluate?
Answer: Whether the donor retains sufficient assets for personal financial security
Because irrevocable gifts permanently transfer assets, advisors must ensure donors retain enough resources to meet living expenses, healthcare needs, and emergencies.
A net income with makeup charitable remainder unitrust (NIMCRUT) reduces which specific risk compared to a standard CRUT?
Answer: The risk that the trust must liquidate illiquid assets to meet required distributions
A NIMCRUT limits distributions to actual net income, so the trustee is not forced to sell illiquid assets prematurely to fund the required unitrust payout.