Estate Trust Taxation

Question 1

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

Answer 1

$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

Question 2

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

Answer 2

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

Question 3

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

Answer 3

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 4

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

Answer 4

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 5

What is the basis of Gifted property for the recipient?

Answer 5

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 6

What are the basic characteristics of complex Trust?

Answer 6

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 7

What are the basic characteristics of a Simple Trust?

Answer 7

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

Question 8

How are Net Operating Losses handled in a Trust?

Answer 8

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 9

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

Answer 9

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

Question 10

When is property transferred in an Estate?

Answer 10

After the death of the donor

Question 11

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

Answer 11

The First $5,250,000 is exempt with a 40% tax on amount above that

Question 12

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

Answer 12

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

Question 13

How is an Estate’s NOL handled?

Answer 13

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 14

What does a gross Estate consist of?

Answer 14

Cash and Property FMV at death, or alternate valuation.

Question 15

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

Answer 15

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

Question 16

What is tenancy by entirety?

Answer 16

1/2 of marital assets go to deceased spouses Estate

Question 17

What is tenancy in common in an Estate?

Answer 17

A, B, and C own property

If A dies, FMV of As share goes to heirs

Question 18

How is Estate tax handled with respect to a beneficiary?

Answer 18

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 19

What is distributable net income (DNI)?

Answer 19

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 20

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

Answer 20

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

Question 21

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

Answer 21

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