Estate, Trusts and Gift Tax

Question 1

Estate

Answer 1

A legal entity that comes into existence upon the death of an individual and continues to exist until all assets of the estate are distributed. Iit’s a taxable entity.

Question 2

Trusts

Answer 2

Legal agreements that allow for ownership of certain assets

to be transferred from the grantor and controlled by a trustee for the benefit of the beneficiary.

Question 3

Simple Trusts

Answer 3

A trust that does not make charitable contributions or allow distributions other than those that come from income earned, which must be distributed in the tax year it is earned. Personal exemption is $300.

Question 4

Complex Trusts

Answer 4

Trusts that can make charitable contributions and is not required to distribute the income earned in the tax year. Personal exemption is $100.

Question 5

Grantor Trusts

Answer 5

Trusts where grantor retains control over the trusts assets. Considered a disregarded entity. Grantor is taxed on the trust income.

Question 6

Distributions

Answer 6

Made by trusts and estates are deductible by the entity but taxable to the recipient. Excess of distribution after the taxable income will be treated as a non taxable distribution of principal.

Question 7

Estates - two different taxes

Answer 7

Income tax & Estate Tax

Question 8

Estate tax

Answer 8

One time only transfer tax based on the value of the deceased estate - imposed on the value of property - FMV of property @ date of death or the earlier of distribution date or 6 mths after death.

Question 9

Income tax for estates

Answer 9

Required to file when annual income exceeds $ 600; exemption is $600, no standard deduction is allowed. Income for a cash basis decedent covers income earned before the taxpayer’s death but not collected until after death.

Question 10

Tax year for estates

Answer 10

May elect to have calendar year or fiscal year ( date of death). Exempt from estimated tax payments for its first two years.

Question 11

Income tax for trusts

Answer 11

Subject only to income tax, must use calendar year.

Question 12

Estate tax filing

Answer 12

Must file if gross value exceeds $5.3M, must be filed within 9 mths after death.

Question 13

Gift tax

Answer 13

Is a transfer tax; donor liable for tax that would have been an estate tax @ donor’s death. Maximum that can be transferred tax free is $5.3m.

Question 14

Gift tax exclusion

Answer 14

Have to give more than $14,000 per donee. Unlimited exclusion are for payments made to an educational institution, health care provider for medical care, charitable gifts, marital deduction.

Question 15

Distributable Net Income

Answer 15

Is the limitation on the amount the trust or estate can deduct with respect to distributions to beneficiaries. Net long term gain allocate to corpus is not included in DNI.

Question 16

Income distribution deduction

Answer 16

The lesser of the actual distribution or DNI ( less adjusted tax- exempt interest)

Question 17

Charitable Contributions

Answer 17

Deduction on an estate fiduciary income tax return is allowable only if the decedent’s specify the contribution.

Question 18

Estate deduction

Answer 18

Administrative expenses are deductible on income tax return only if the estate tax deduction is waived for those expenses. A statement must be filed with the income tax return to state that administration fees where not on the estate tax return.

Question 19

Capital Gains/ Losses

Answer 19

Are classified as principal and must remain with the estate r trust to be taxed at the estate or trust level.