Estate Trust and Wealth Tax Flashcards
How is Gift taxation different from Estate taxation?
Property transferred while taxpayer is living
What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?
$14,000 per year per spouse to each individual
In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits
If a Gift is an annuity, what value is used for the Gift?
If the Gift is an annuity, use Present Value to determine the gross Gift
What is the basic Gift tax calculation?
Gross Gifts - 1/2 of Gifts (treated as given by spouse)
Total # of donees x $14,000 exclusion = Taxable Gift
How is a Gift taxed if a recipient gains a future ownership in the Gifted property?
Recipient must gain ownership and all rights to property to get the annual exclusion.
If recipient merely gains a future ownership, then the present value of the Gift is 100% taxable to donor and cannot exclude from Gift tax calculation
What are the deductions for Gift tax, besides the annual exclusion?
Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)
Political contributions
Charitable Gifts
Unlimited Gifts to spouse
What is the basis of Gifted property for the recipient?
If a loss on sale, basis is FMV on the date of the Gift
If a gain on sale, basis is same as donor’s basis
No G/L if donor basis is less than sales price, and sales price is less than FMV @ Gift date
How/when are Gift and Estate/Trust tax returns filed?
Gifts and Estate - Calendar-year basis only
Due April 15
Estate/Trust must file income over $600
What are the basic characteristics of complex Trust?
Current income distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100
Key Point: Distribution of Trust corpus (principal) ok
What are the basic characteristics of a Simple Trust?
Must Distribute all income generated
Disallowed Accumulation of income
No charitable contributions
Distribution of Trust principle DISALLOWED
Allowed personal exemption of $300
How are Net Operating Losses handled in a Trust?
Trusts can have a Net Operating Loss
Any unused NOL flows through to the beneficiaries
How are expenses and fees related to tax-exempt income handled in a Trust?
Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust
When is property transferred in an Estate?
After the death of the donor
What amount of a decedent’s Estate is exempt from Estate Tax?
The First $5,250,000 is exempt with a 40% tax on amount above that
How are a decedent’s medical expenses handled with respect to an Estate?
Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return
How is an Estate’s NOL handled?
Estates can have a Net Operating Loss
Any unused NOL flows through to the beneficiaries
What does a gross Estate consist of?
Cash and Property FMV at death, or alternate valuation.
What is joint tenancy with respect to an Estate? How is it calculated?
When two non-spouses jointly own property
FMV at death X % Ownership = Amount in Estate
What is tenancy by entirety?
1/2 of marital assets go to deceased spouses Estate
What is tenancy in common in an Estate?
A, B, and C own property
If A dies, FMV of A’s share goes to heirs
How is Estate tax handled with respect to a beneficiary?
Property received through inheritance not income to recipient
Property value is FMV at date of death or 6 months later If property is sold prior to 6 month date and the alternative date is used, FMV at date of sale is used to value property
Basis in property automatically assumes LT holding period
What is distributable net income (DNI)?
DNI = Taxable Income Expenses (from income production)
Trust beneficiaries only pay tax if earnings are distributed
Estate beneficiaries pay tax on DNI, regardless if distributed
When must a tax exempt organization file a 990-T for Unrelated Business Income?
If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T
What are the requirements for a 501(c)3 organization?
Organized and Operated exclusively for exempt purposes
No earnings can benefit an individual or private shareholder
Cant attempt to influence legislation as a major part of its activities
Cant campaign politically
When is a return due after death of tax payer?
9 months
What is the lifetime maximum gift exemption amount?
$5,450,000
