Ch 28 Flashcards
Chapter definitions for South-Western Federal Taxation 2015: Comprehensive, 38th Edition
Complex trust
Not a simple trust. Such trusts may have charitable beneficiaries, accumulate income, and distribute corpus. ?? 661663.
Corpus
The body or principal of a trust. Suppose, for example, George transfers an apartment building into a trust, income payable to Wanda for life, remainder to Sam upon Wanda’s death. Corpus of the trust is the apartment building.
Deductions in respect of a decedent
Deductions accrued at the moment of death but not recognizable on the final income tax return of a decedent because of the method of accounting used. Such items are allowed as deductions on the estate tax return and on the income tax return of the estate (Form 1041) or the heir (Form 1040). An example of a deduction in respect of a decedent is interest expense accrued to the date of death by a cash basis debtor.
Distributable net income (DNI)
The measure that determines the nature and amount of the distributions from estates and trusts that the beneficiaries must include in income. DNI also limits the amount that estates and trusts can claim as a deduction for such distributions. ? 643(a).
Entity accounting income
Under state law, entity accounting income is the amount the income beneficiary of the trust or estate is eligible to receive from the entity.
Grantor
A transferor of property. The creator of a trust usually is referred to as the grantor of the entity.
Grantor trust
A trust under which the grantor retains control over the income or corpus (or both) to such an extent that he or she is treated as the owner of the property and its income for income tax purposes. Income from a grantor trust is taxable to the grantor, and not to the beneficiary who receives it. ?? 671679. See also reversionary interest.
Income in respect of a decedent (IRD)
Income earned by a decedent at the time of death but not reportable on the final income tax return because of the method of accounting that appropriately is utilized. Such income is included in the gross estate and is taxed to the eventual recipient (either the estate or heirs). The recipient is, however, allowed an income tax deduction for the estate tax attributable to the income. ? 691.
Reversionary interest
The trust property that reverts to the grantor after the expiration of an intervening income interest. Assume Gail places real estate in trust with income to Art for 11 years, and upon the expiration of this term, the property returns to Gail. Under these circumstances, she holds a reversionary interest in the property. A reversionary interest is the same as a remainder interest, except that, in the latter case, the property passes to someone other than the original owner (e.g., the grantor of a trust) upon the expiration of the intervening interest. See also grantor trust.
Simple trust
Simple trusts are those that are not complex trusts. Such trusts may not have a charitable beneficiary, accumulate income, or distribute corpus.
Sprinkling trust
When a trustee has the discretion to either distribute or accumulate the entity accounting income of the trust and to distribute it among the trust’s income beneficiaries in varying magnitudes, a sprinkling trust exists. The trustee can sprinkle the income of the trust.
