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REG > Estate Trust Taxation > Flashcards

Estate Trust Taxation Flashcards

1
Q

How is Gift taxation different from Estate taxation?

A

Property transferred while taxpayer is living

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2
Q

What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?

A

$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

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3
Q

If a Gift is an annuity, what value is used for the Gift?

A

If the Gift is an annuity, use Present Value to determine the gross Gift

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4
Q

What is the basic Gift tax calculation?

A

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $14,000 exclusion
= Taxable Gift

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5
Q

How is a Gift taxed if a recipient gains a future ownership in the Gifted property?

A

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 calc

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6
Q

What are the deductions for Gift tax, besides the annual exclusion?

A

Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)

Political contributions

Charitable Gifts

Unlimited Gifts to spouse

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7
Q

What is the basis of Gifted property for the recipient?

A

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

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8
Q

How/when are Gift Tax returns filed?

A

Calendar-year basis only

Due April 15

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9
Q

What are the basic characteristics of complex Trust?

A 
Does NOT distribute all income currently
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

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10
Q

What are the basic characteristics of a Simple Trust?

A

Must distribute all income currently
(Accumulation of income disallowed)
No charitable contributions
Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

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11
Q

How are Net Operating Losses handled in a Trust?

A

Trusts can have a Net Operating Loss (NOL)

Any unused NOL flows through to the beneficiaries

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12
Q

How are expenses and fees related to tax-exempt income handled in a Trust?

A

Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust

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13
Q

When is property transferred in an Estate?

A

After the death of the donor

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14
Q

What amount of a decedent’s Estate is exempt from Estate Tax?

A

The First $5,340,000 (2014) is exempt with a 40% tax on amount above that

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15
Q

How are a decedent’s medical expenses handled with respect to an Estate?

A

Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return

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16
Q

How is an Estate’s NOL handled?

A

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

17
Q

What does a gross Estate consist of?

A

Cash and Property FMV at death, or alternate valuation.

18
Q

What is joint tenancy with respect to an Estate? How is it calculated?

A

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

19
Q

What is tenancy by entirety?

A

1/2 of marital assets go to deceased spouses Estate

20
Q

What is tenancy in common in an Estate?

A

A, B, and C own property

If A dies, FMV of As share goes to heirs

21
Q

How is Estate tax handled with respect to a beneficiary?

A

Property received through inheritance is 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

22
Q

What is distributable net income (DNI)?

A

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

Beneficiaries taxed on receipt of distributions (to extent of DNI)

23
Q

When must a tax exempt organization file a 990-T for Unrelated Business Income?

A

If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T

24
Q

What are the requirements for a 501(c)3 organization?

A

Organized and Operated exclusively for exempt purposes

No earnings can benefit an individual or private shareholder

Can’t attempt to influence legislation as a major part of its activities

Can’t campaign politically

25
Q

What personal exemptions are available for fiduciaries (estates & trusts)?

A

Estates $600
Simple trusts $300

Complex Trusts: $300 if distribute all income currently

$100 for all other Complex trusts

26
Q

What is the calculation for DNI?

A 
Taxable Income
\+Tax-exempt income
\+personal exemption
\+net capital loss (if any)
-net capital gains allocable to CORPUS
= DNI

Shortcut: Accounting Income - Net Capital Gains

27
Q

What filing year must estates and trusts use?

A

Trusts must use Calendar year

Estates may choose any year-end

Both must file by 15th day of 4th month (April 15)
Both get automatic 5 month extension

(Trust - tight; Estate - either)

28
Q

Must fiduciaries pay estimated income taxes?

A

Trusts must always pay estimated taxes

Estates only after first 2 years of operation

29
Q

What is IRD?

A

Income in Respect of a Decedent

Income earned by decedent but not included in the decedent’s final return

Taxed as income to the estate and included on estate tax return and estate income tax return

Any estate tax paid on IRD is Misc. Itemized Deduction (NO 2% floor)

30
Q

2014 Annual Exclusion

A

$14,000

ONLY applies to gifts of a “present” interest

Gifts of a future interest, or gifts that don’t qualify as gifts (donor retains interest/power to revoke) are NOT eligible for the annual exclusion

*i.e.- if a gift is made to a trust but it will not benefit the recipient currently, then there is NO exclusion allowed since it is not a gift of a present interest

31
Q

2014 Unified Credit

A
  • 2014: $5,340,000

2013: $5,250,000

32
Q

Gift Splitting rules

A

Election is available each year

Must be married at time of transfer

The gift is split and treated as being given equally by both spouses

Beneficial because both spouses can then use an annual exclusion for gifts of present interest. (Both will need to file a gift tax return)

33
Q

Marital deduction

A

Unlimited, for most gifts to a spouse

Does NOT include gifts of “terminable interests”

Deduction = total gift - any excluded portion (if annual exclusion applies)

Does NOT apply if spouse is not a U.S. Citizen, however there is an annual exclusion of $145,000 in this case.

34
Q

Charitable Contribution deduction

A

Unlimited

Defined similarly to income tax

*educational, scientific, religious organizations

AS WELL AS foreign charities

Cemeteries are NOT included

35
Q

Certain exclusions from the Gift Tax

Transfers that are not considered gifts

A

Payment of another individual’s medical expenses must be paid DIRECTLY to the medical provider

Payment of another individual’s education expenses (Tuition and Fees ONLY) must be paid directly to the educational institution.

Political contributions are NOT gifts

Satisfaction of an obligation is NOT a gift

36
Q

Specific inclusions in Gross Estate

A

Life insurance
Jointly Owned property
Retained interests
Transfers within 3 years of death

37
Q

Specific deductions for the Gross Estate

A

Marital deduction - unlimited (except for terminable interests and non-citizen spouses)

Debts of the estate - mortgages, accrued taxes

Final expenses - Funeral and administrative expenses

Casualty & theft losses - no floor limitation. losses must be incurred during administration of estate.

Charitable contributions - unlimited, same rules as gift tax

38
Q

What is the GST?

A

Generation Skipping Tax

Prevents avoidance of transfer taxes by skipping one generation of recipients

*Not applicable if persons in intervening generations are deceased (transfer to grandchild but grandchild’s parents are dead)

REG (20 decks)

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