Estate Trust Taxation

Question 1

How is gift taxation different from estate taxation?

Answer 1

Property transferred while taxpayer is living

Question 2

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

Answer 2

$13;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

Question 3

If a gift is an annuity; what value is used for the gift?

Answer 3

If the gift is an annuity; use Present Value to determine the gross gift

Question 4

What is the basic gift tax calculation?

Answer 4

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $13;000 exclusion
= Taxable gift

Question 5

How is a gift taxed if a recipient gains a future ownership in the gifted property?

Answer 5

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

Question 6

What are the deductions for gift tax; besides the annual exclusion?

Answer 6

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

Political contributions

Charitable gifts

Unlimited gifts to spouse

Question 7

What is the basis of gifted property for the recipient?

Answer 7

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

Question 8

How/when are gift tax returns filed?

Answer 8

Calendar-year basis only

Due April 15

Question 9

What are the basic characteristics of complex trust?

Answer 9

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

Question 10

What are the basic characteristics of a Simple trust?

Answer 10

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of trust corpus DISALLOWED

Allowed personal exemption of $300

Question 11

How are Net Operating Losses handled in a trust?

Answer 11

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 12

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

Answer 12

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

Question 13

When is property transferred in an estate?

Answer 13

After the death of the donor

Question 14

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

Answer 14

The First $5;120;000 is exempt with a 35% tax on amount above that

Question 15

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

Answer 15

Medical expenses paid after death; but incurred within 1 year of death go on decedent’s personal tax return

Question 16

How is an estate’s NOL handled?

Answer 16

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 17

What does a gross estate consist of?

Answer 17

Cash and Property FMV at death; or alternate valuation.

Question 18

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

Answer 18

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in estate

Question 19

What is tenancy by entirety?

Answer 19

½ of marital assets go to deceased spouse’s estate

Question 20

What is tenancy in common in an estate?

Answer 20

A; B; and C own property

If A dies; FMV of A’s share goes to heirs

Question 21

How is estate tax handled with respect to a beneficiary?

Answer 21

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

Question 22

What is distributable net income (DNI)?

Answer 22

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

Question 23

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

Answer 23

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

Question 24

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

Answer 24

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