Estate Tax Process + Trusts Overview

Question 1

How to find Adjusted Gross Estate

Answer 1

Gross estate - deductions

Question 2

How to find Taxable Estate

Answer 2

Adjusted Gross Estate - Charitable bequests - Marital deduction

Question 3

How to find Tentative Estate Tax

Answer 3

Total Taxable Transfers x Tax Rate

Question 4

How to find Estate Tax Liability

Answer 4

Gross Estate Tax - Applicable Credit Amount - Other Credits

Question 5

Characteristics of a Simple Trust

Answer 5

1. Distribute all income in the year earned
2. No charitable beneficiaries
3. No distribution of principal
4. Personal exemption of $300

Question 5

Characteristics of a Complex Trust

Answer 5

1. Can accumulate income
2. Charitable beneficiaries allowed
3. May distribute principal
4. Personal exemption of $100

Question 6

Characteristics of a Revocable Trust

Answer 6

For flexibility and to remain in control until the grantor dies

1. Grantor has the right to terminate
2. Transfers are not a completed gift
3. Assets are subject to estate tax at grantor’s death

Question 7

Characteristics of an Irrevocable Trust

Answer 7

For asset protection. Must be funded to exist.

1. No right to revoke
2. Transfers are completed gifts subject to gift taxes (trust becomes the owner)
3. Assets are generally not subject to estate tax at grantor’s death

Question 8

Characteristics of a Living/Inter-Vivos Trust

Answer 8

1. Established + funded during the grantor’s life and take immediate effect
2. Funds pass outside will/probate
3. Title to property is held in the name of the trust

Question 9

Characteristics of a Testamentary Trust

Answer 9

1. created thru a will and funded after death
2. possible purposes: reducing estate tax, providing IM, and/or ensuring the estate ends up in the right hands

Question 10

Who is the grantor?

Answer 10

AKA settlor, trustmaker, or trustor - the person who transfers property to and dictates the terms of a trust

Question 11

Who is the trustee?

Answer 11

AKA fiduciary - the party to whom property is transferred by the grantor and receives legal title to the property placed in the trust
-manage, distribute, and accumulates income + principal
-must follow a formal written agreement for the benefit of beneficiaries
-services as a fiduciary

Question 12

What is the 65 day rule?

Answer 12

This allows fiduciaries to make distributions from a trust within 65 days of the new tax year

Question 13

What is the Section 645 election?

Answer 13

This allows the executor of an estate and the trustee of a revocable trust to elect to treat the estate and the trust as one for tax purposes.

Question 14

What is corpus?

Answer 14

AKA res - amount of principal in a trust

Question 15

Who are the beneficiaries?

Answer 15

AKA remainderman - parties that will receive the benefit or the use of the trust property and/or income

Question 16

What are the requirements for trust filing?

Answer 16

The fiduciary must file Form 1041 for a trust that has:
-any taxable income
-gross income > $600
-a beneficiary that is a non-resident alien

Question 17

Trust accounting income

Answer 17

the amount of income the beneficiaries are entitled to receive each year

Question 18

Trust taxable income