Estate and Gift Tax

Question 1

Estates are subject to which two taxes?

Answer 1

• Income tax (annually)

- Estate tax (one time transfer tax based on estate value)

Question 2

Distributable Net Income - definition

Answer 2

A limitation on the amount the trust/estate can deduct with respect to distributions to beneficiaries

Question 3

Distributable Net Income - calculation

Answer 3

Estate/Trust Gross Income
(Estate/Trust Deductions)
=Adjusted Total Income
\+Adjusted Tax-Exempt Interest
(Capital Gains)
=DNI

Question 4

Income distribution deduction

Answer 4

Equals the lessor of:
-actual distribution to beneficiary
OR
-DNI

Question 5

Simple trust requirements

Answer 5

• makes distributions out of current income, cannot make distributions from corpus (principal)
• required to distribute all of its income currently
• cannot take a deduction for a charitable org
• entitled to a $300 exemption in arriving at TI

Question 6

Grantor trust requirements

Answer 6

• Grantor retains control over trust assets
• Grantor trust is considered a disregarded entity for IT purposes. Any TI or deduction is reported on IT return of the grantor
• Grantor trust can be a qualified shareholder of an S corp.
• Grantor trust is generally not included in the taxable estate of the grantor upon his/her death

Question 7

Complex trust requirements

Answer 7

• May accumulate current income
• May distribute principal
• May deduct charitable contributions
• Permitted an exemption of $100 in arriving at TI