Estate Trust Taxation 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 calc
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 Tax returns filed?
Calendar-year basis only
Due April 15
What are the basic characteristics of complex Trust?
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
What are the basic characteristics of a Simple Trust?
Must distribute all income currently
(Accumulation of income disallowed)
No charitable contributions
Distribution of Trust corpus DISALLOWED
Allowed personal exemption of $300
How are Net Operating Losses handled in a Trust?
Trusts can have a Net Operating Loss (NOL)
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 $5,340,000 (2014) 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 As share goes to heirs
How is Estate tax handled with respect to a beneficiary?
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
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
Beneficiaries taxed on receipt of distributions (to extent of DNI)
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
Can’t attempt to influence legislation as a major part of its activities
Can’t campaign politically
What personal exemptions are available for fiduciaries (estates & trusts)?
Estates $600
Simple trusts $300
Complex Trusts: $300 if distribute all income currently
$100 for all other Complex trusts
What is the calculation for DNI?
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
What filing year must estates and trusts use?
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)
Must fiduciaries pay estimated income taxes?
Trusts must always pay estimated taxes
Estates only after first 2 years of operation
What is IRD?
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)
2014 Annual Exclusion
$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
2014 Unified Credit
- 2014: $5,340,000
2013: $5,250,000
Gift Splitting rules
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)
Marital deduction
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.
Charitable Contribution deduction
Unlimited
Defined similarly to income tax
*educational, scientific, religious organizations
AS WELL AS foreign charities
Cemeteries are NOT included
Certain exclusions from the Gift Tax
Transfers that are not considered gifts
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
Specific inclusions in Gross Estate
Life insurance
Jointly Owned property
Retained interests
Transfers within 3 years of death
Specific deductions for the Gross Estate
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
What is the GST?
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)
