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?
$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
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 $13;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?
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
What are the basic characteristics of a Simple trust?
Income distributions mandatory
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
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;120;000 is exempt with a 35% 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 decedent’s 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?
½ of marital assets go to deceased spouse’s estate
What is tenancy in common in an estate?
A; B; and C own property
If A dies; FMV of A’s share goes to heirs
How is estate tax handled with respect to a beneficiary?
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
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
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
