ESTATE, GIFT, FIDUCIARY TAX

Question 1

Gift tax vs Estate Tax

Answer 1

Gift - transfer during life or upon death; lifetime transfer; donor is liable

Estate - triggered by death of taxpayer; estate is liable

Question 2

Explain the interest/principal when taxpayer transfers property to a trust

Answer 2

Makes 2 gifts

1. income interest
2. remainder interest

beneficiary of income receives each year
beneficiary of remainder receives corpus when trust terminates

Question 3

Explain federal gift tax

Answer 3

Valued at FMV
Return due April 15
Can make tax free gifts up to exclusion PER person

Question 4

Gift Tax Splitting

Answer 4

Husband/Wife can gift split - get double the exclusion amount
Must file gift-tax return to be able to do this

Question 5

Gift Tax Exclusions

Answer 5

Unlimited if made to spouse, political organization or charity

Unlimited if paid directly to institution on behalf of the individual of medical purposes or educational tuition

Question 6

Gross estate

Answer 6

FMV of all property owned at the date of death

Question 7

Alternate valuation

Answer 7

Property is measured at FMV owned at date of death

executor can elect to use AV which is 6 mo after death

Can only be elected if value of gross estate is less than date of death value

If elected and property is distributed before date, use the date of distribution value

Question 8

Jointly owned property

Answer 8

By married couple, 100% of property is included in estate of first to die, unless surviving spouse can prove they contributed to purchasing the assets

Question 9

Life Insurance rules

Answer 9

Proceeds are included in estate if either:

1. the decedent had incidents of ownership
2. decedent’s estate is the beneficiary of the insurance policy

excluded if buy-sell agreement

Question 10

Estate deductions allowed

Answer 10

Admin expenses
Selling expenses
Debt of estate
Casualty losses
Funeral expenses

Question 11

What types of income are allocated to principal?

Answer 11

Extraordinary items; payments that are made irregularly

Question 12

Exemptions

Answer 12

$600 for estates
$300 for simple trusts, and complex that distribute all of their income CURRENTLY
$100 for all other complex trusts

Question 13

Income in Respect of a Decedent

Answer 13

Income that was earned by the decedent but not constructively received before death

Included in gross estate and in taxable income for the estate

Question 14

Distributable Net Income

Answer 14

Estate/trust pays income on any income not distributed to beneficiaries. What is distributed is not taxable.

DNI is the max amount trust/estate can use as a distribution deduction

Question 15

DNI Computation

Answer 15

Taxable income
- Net tax-exempt income
\+ personal exemption
\+ net capital loss
- net cap gains allocable to corpus

Question 16

Medical Expense Rule

Answer 16

Incurred prior to death and paid within one year of death can be deducted on final 1040 or estate return