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

$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 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 $14,000 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 $5,250,000 (2013) and $5,340,000 (2014) is exempt with a 40% 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 decedents 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

1/2 of marital assets go to deceased spouses Estate

Question 20

What is tenancy in common in an Estate?

Answer 20

A, B, and C own property

If A dies, FMV of As 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

Cant attempt to influence legislation as a major part of its activities

Cant campaign politically

Question 25

With regard to the federal estate tax, what are the components of alternate valuation?

Answer 25

1) Can be elected only if its use decreases both the value of the gross estate and the estate tax liability
2) Election is irrevocable and applies to all property in the estate.
3) Generally a date 6 months subsequent to the decedent’s death.

Question 26

Under what circumstances is trust property with an independent trustee includible in the grantor’s gross estate?

Answer 26

When the trust is revocable

Question 27

What are the components under the unified transfer for 2013?

Answer 27

1) Lifetime taxable gifts are taxed on a cumulative basis
2) Transfers at death are taxed on a cumulative basis
3) The unified transfer tax is reduced by the unified transfer tax credit.

Question 28

True or False: A special rule applies if a descendent acquires appreciated property within 1 year of death and this property passes back to the donor of the donor’s spouse. When this occurs, the beneficiaries basis is the basis of the property in the hands of the descendent before death, rather than FMV at date of date.

Answer 28

True

Question 29

What is generation skipping tax?

Answer 29

Imposed on lifetime and testamentary transfers to “skip person”. A skip person is anyone who is two generations or more below transfer.

Question 30

What can federal state tax be reduced by?

Answer 30

1) foreign death taxes

2) tax on prior transfers

Question 31

What is gift of present interest?

Answer 31

Recipient has full enjoyment immediately of the gift

Question 32

If grantor retains the power to revoke the trust; what’s that status of the income interest/gift/transfer?

Answer 32

The income interest is not a completed gift

Question 33

In order for an unlimited marital deduction to apply on the estate tax, what must happen?

Answer 33

1) The decedent must be married and survived by spouse
2) The spouse must be a US citizen
3) The property must be included in the decedent gross estate and pass to surviving spouse
4) The spouse’s interest in the property must be a terminable interest