Estate, Trust, and Gift Taxation

Question 1

What amount of income does an Estate beneficiary report?

Answer 1

A: Up to distributable amount.

EG:

$40K taxable int. on estate - $34 estate expenses = $6K taxable

(If $15K being distributed to ben, consider the addit’l $9K as a nontaxable distribution of principal).

Question 2

What goes into the estate’s distributable net income (DNI)?

Answer 2

Taxable interest of trust + Rental Income (less) expenses; trust fees allocatable to income; RE taxes rel. to income-producing property

Gains on corpus or principal are NOT included in the definition.

Question 3

When are 1041 Estate Returns due?

Answer 3

A: April 15

Question 4

What are some features of Complex Trusts?

Answer 4

• May distribute accumulated income
• May make principal/corpus distributions
• May provide for charitable contributions

(any type of trust can dist. to multiple beneficiaries, or have a grantor and/or beneficiary that is a corp [not an indiv.])

Question 5

What type of exemption is available to a simple trust?

Answer 5

A: a $300 exemption

Question 6

When will trust property w/ independent trustee be includable in Grantor’s estate?

Answer 6

A: When it is a revocable trust

Question 7

When distributing a trust to multiple members, how do you calculate how the DNI (distributable net income) flows to each beneficiary?

Answer 7

A: you allocate.

EG:

pro-rata portion: $90K/$150K total req. distributions * DNI for the year of $120K:

90K/150K*$120,000 = $72K

Question 8

What are the 4 types of money transfers that are auto-excluded from being gift taxed?

Answer 8

1) direct tuition payments to edu. institutions
2) direct payments to healthcare providers for med. care
3) charitable gifts
4) marital $ transfers

Question 9

Marital Deduction?

Answer 9

Or: unlimited marital deduction

Deduction from the gross estate for unlimited transfers to decedent’s spouse (Write off at val.)

Question 10

What is “income in respect of a (Cash-basis) decedent”?

Answer 10

This covers Income earned before the taxpayer’s death, but not collected until after death.

Question 11

When is executor of a decedent’s estate required to file fiduciary income tax return 1041 for the year?

Answer 11

A: When estate has GROSS income of $600 or more in the tax year.

Question 12

When is the charitable contribution deduction allowable on estate’s fiduciary return?

Answer 12

A: IF the decedent’s will SPECIFICALLY provides for the contribution,

In fact there can be an Unlimited charitable contribution deduction if governed by the will.

Question 13

Gift tax return due?

Answer 13

April 15

Question 14

Do estates and trusts get standard deductions in preparing fiduciary income tax returns?

Answer 14

A: No.

Question 15

Rule about calendar years as taxable periods; for Estates and Trusts?

Answer 15

Estate: May choose same accounting period as decedent, or calendar year

Trust: Trusts, except tax-exempt trusts, MUST adopt calendar year.

Question 16

Are payments of interest able to be termed “Tax-free gifts” on trusts?

Answer 16

A: No.

Question 17

Dif. between Forms 706 and 1041?

Answer 17

The estate has 2 types of taxes:

“Fiduciary” Income Tax Return 1041
1) Estate income tax return which is from 1041 which must be filed if the estate has income of $600 or more. It must be filed on or before 15th April(extension available). This tax return is imposed on the income which is earned by the Estate.

“Federal Estate Tax” Form 706
2) Estate tax(Form 706) - INITIAL. This is the tax which is imposed when the actual estate is transferred to the beneficiary. Estate tax is also called “transfer tax”. Estate tax must be filed within 9 months after the death of the decedent (don’t confuse it with the Estate valuation date, which is 6 months!). Form 706 has to be filed if the gross estate is more than $5.43 million.

Question 18

Rule about deducting administrative expenses paid by the fiduciary of an estate?

Answer 18

Statement must be filed with the income tax return stating that the Admin. expense deductions have NOT Been already taken on “Estate tax return” 706.

Question 19

What goes into “Accounting Income” of a trust?

Answer 19

a) Dividends, int. from corporate bonds, tax-exempt interest from State Bonds

(NOTHING that is denoted as “Allocated to corpus”)

Question 20

When you retain discretionary power to receive taxable income from trust, what happens?

Answer 20

A: The grantor/owner of trust must claim trust taxable income.

(Grantor trust)

Question 21

Gift tax exclusion and married people?

Answer 21

If they elect gift-splitting, couples can each give DOUBLE the charitable amount

(EG $12K exclusion for the year… each gets a $24K exclusion)

Question 22

Generation-skipping transfer tax?

Answer 22

Sep. tax in addition to gift and estate taxes