Estate, Trust, Gift Taxation

Question 1

How are Estates taxed?

R4-61

Answer 1

Two separate taxes:

1) Income Tax
- -income earned by estate taxed annually

2) Estate Tax
- -1-time tax before transfer to beneficiary

Question 2

What is Unified Transfer tax?

R4-61

Answer 2

–estate and gift tax unified into a single transfer tax

Question 3

How much can be excluded in the Unified Transfer Tax?

R4-61

Answer 3

Lifetime Gifts:

• -up to $14,000 per yr per donee
• -$2,125,800 credit exempts estate/gift tax

Death time transfers:
–$2,125,800 credit exempts estate/gift tax

Question 4

Distributable Net Income (DNI)

What is it?

R4-62

Answer 4

The amount an estate/trust can deduct of distributions to beneficiary

Question 5

Distributable Net Income (DNI)

How is it Calculated?

R4-62

Answer 5

Estate (trust) GI
-estate (trust) deductions
=adj total income
\+adj tax-exempt interest
-capital gains
=DNI

Question 6

What can be deducted in calculating DNI?

R4-62

Answer 6

exp incurred in:

• -contributions to charity (unlimited deduction)
• -carrying on trade or business
• -production of income
• -management of income-producing property
• -determination, collection, refund of tax

Question 7

Income distributed to beneficiary
How is it treated?

R4-63

Answer 7

• -reported on K-1; Form 1041

- -retains the same character (tax exempt, portfolio, passive, etc.)

Question 8

Income Distribution Deduction
What amount an be taken?

R4-64

Answer 8

lesser of:
–actual distribution to beneficiary
or
–DNI (less adjusted tax-exempt interest)

Question 9

Estate Income Tax
requirements

R4-64

Answer 9

• -for income over $600
• -no standard deduction allowed
• -1st 2yrs exempt from est. payments

Tax Year:

• -Calendar year= 4/15
• -Fiscal year= 15th day of 4th month after year-end

Question 10

Trust Income Tax

R4-65

Answer 10

Tax Year:
–Calendar year= 4/15

DNI:
–may deduct up to DNI (less adj tax-exempt interest)

Question 11

Simple Trust

R4-65

Answer 11

• -only makes distributions from current income
• -must distribute all current income
• -cannot deduct charitable contribution
• -$300 exemption to arrive at TI

Question 12

Grantor Trust

R4-65

Answer 12

• -person who established it controls it
• -income or deductions reported on grantor’s income tax return
• -can be a qualified shareholder of S Corp
• -not included in taxable estate of grantor upon death

Question 13

Complex Trusts

R4-66

Answer 13

• -may accumulate current income
• -may distribute principal
• -may deduct charitable contributions
• -$100 exemption to arrive at TI