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GiftLaw Pro Home   >  Chapter 5 - Difficult Property Gifts  >  5.1 Debt  >  5.1.2 Debt and Unitrusts  >  Basic Quiz

Basic Quiz - 5.1.2 Debt and Unitrusts

1. It is permissible to transfer property subject to a recourse debt into a unitrust.
           
2. If a donor wants to contribute real property to a unitrust and the property has a debt on it, the charity should encourage the donor to use another asset because there are no solutions for transferring debt property into a unitrust.
           
3. If a donor owns property that is subject to debt and the debt is at least five years old, it is then permissible for the donor to transfer that property to a unitrust.
           
4. If a donor satisfies the 5 and 5 rule for debt-encumbered property and the debt is non-recourse, the donor may transfer the property into a unitrust without disqualifying the trust.
           
5. Meeting the 5 and 5 test with property subject to a non-recourse loan allows the donor to transfer such property to a unitrust. Once this test is satisfied and the property is transferred, there is no time limit to paying off the loan.
           
6. One way to deal with debt-encumbered property, if a donor wishes to use that property to fund a unitrust, is to simply pay off the debt.
           
7. Another way to deal with debt-encumbered property is for the donor to borrow against another property that he owns and pay off the debt on the property that he wishes to transfer to a unitrust.
           
8. If a donor has owned debt-encumbered property for 10 years and the debt is non-recourse, but she refinanced less than a year ago, it is still permissible to transfer the debt-encumbered property to a unitrust and satisfy the 5 and 5 test.
           
9. When the donor satisfies the 5 and 5 test and transfers debt-encumbered property into a unitrust, the donor receives a charitable deduction based on the fair market value of the property.
           
10. A donor meeting the 5 and 5 test and transferring debt encumbered property to a unitrust will have to recognize gain on the difference between the amount of the debt and the basis allocated to the debt.