Estate_Trust_Taxation Flashcards
How is Gift taxation different from Estate taxation?
- Gift - Property transferred while taxpayer is living
- Estates - result from the death of the death of individaul
What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?
- annual exclusion amount = $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
- future interest - no $14,000 exclusion
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 (cash, FMV property, reduction in interest on loan, discount to sale of property)
- *-** 1/2 of Gifts (treated as given by spouse)
- *-** Total # of donees x $14,000 exclusion
- *-** Education and medical bills directly paid → exclude
- *-** Support of minor → exclude
- *-** Donation to political organization and charities → exclude
- *=** taxable Gift for CY
- *+** taxable gift PY
- *=** Total 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
- if the donor dies, no later than the date for filing the estate tax return - 9 month after date of death
- form 709
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?
- **Must distribute all income distributions each year **
-
CANNOT
- make charitable contributions
- distribute Trust corpus (principal)
- 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
• unlimited marital deduction
What amount of a decedent’s Estate is exempt from Estate Tax?
- The First $5,250,000 is exempt with a 40% tax on amount above that
- File an estate tax return (form 706) if decedent’s gross estate > $5,250,000 - if lifetime gift, the exemption amount is reduce by the amount of taxable lifetime gift - to see if need to file a return
How are a decedent’s medical expenses handled with respect to an Estate?
Medical expenses paid by decedent’s estate within 1 year of death AND executor attached a waiver → go on **decedent’s final 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?
1/2 of marital assets go to deceased spouses Estate
What is tenancy in common in an Estate?
A, B, and C own property If A dies, FMV of As share goes to heirs
How is Estate tax handled with respect to a beneficiary?
- Property received through inheritance → no income to recipient
- Property value is FMV at date of death OR 6 months later- alternative valuation date → AVD is used only if it reduce both value of the gross estate and amount of estate tax liability
- 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 = max amount of distribution that can be taxed to the beneficiary & max amount of distribution deduction for the estate, the rest is a tax free distribution of principal
- **if multiple distribution > DNI → DNI must be prorate to determine the portion of each distribution that must be include in gross income **
- DNI includes tax exempt income - municipal bond
- DNI does NOT include Net capital gain allocated to the corpus
- No exemption
what credits may be offset against the gross estate tax in determining the net estate tax ?
-
Foreign death tax credit – Taxes paid on property in other countries to the extent the property
has been taxed twice. -
Unified credit – A credit that is large enough to eliminate the tax on an estate equal to
the lifetime exclusion of $5,250,000 -
State Death tax credit – Payments for State estate, inheritance, legacy or succession
taxes.
When is life insurance proceed included in the decedent’s gross estate?
Life insurance proceed is included in the decedent’s gross estate when:
- life insurance proceed is payable to the estate
- life insurance proceed is payable to another for the benefit of the estate
- the decendent possessed and incident of ownership on the police i.e. power to change the beneficiary, revoke, pledge, cancel policy
