Estates, Trusts, and Gift Tax

Question 1

What is considered remainder in trusts and estates?

Answer 1

Principal of trust:
All assets contributed
Property acquired in exchange for corpus
Proceeds from sale of corpus
Capital gains
Stock dividends
Mortgage premiums and payments
Capital improvements
Insurance proceeds

Question 2

What is considered income in trusts and estates?

Answer 2

Earnings of trust:
Cash dividends
Interest income
Rental income and expense
Property taxes
Insurance premiums
Depreciation
Municipal bond interest

Question 3

What are the five conditions to be a Valid Express Trust?

Answer 3

BRATS
Beneficiary - must have one
Reasonable intent - must have valid purpose
Assets - must contain corpus
Trustee - not considered a tax preparer
Specified life - length of life + 21 years

Question 4

What is a spendthrift trust?

Answer 4

Prohibits assets from being pledged to pay debts of a beneficiary

Question 5

What is a resulting trust?

Answer 5

Created by courts due to failure of an express trust

Question 6

What is a cy press trust?

Answer 6

Established due to failure of a charitable trust that has served its purpose

Question 7

What is a totten or tentative trust?

Answer 7

Created when settlor opens a bank account in his own name “as trustee” for another

Question 8

What is a constructive trust?

Answer 8

Imposed by courts when there has been an abuse of a confidential relation

Question 9

What is per capita distribution?

Answer 9

Allocation is equal to each beneficiary
3 children - each get 1/3
One child with 2 children dies - each get 1/4

Question 10

What is per stripes distribution?

Answer 10

Allocation is equal at the level of the first generation
3 children - each get 1/3
One child with 2 children dies - 2 surviving still get 1/3, deceased child’s children is 1/6

Question 11

What is a grantor trust?

Answer 11

Revocable trust that is considered income of grantor

Question 12

What is a simple trust?

Answer 12

Trust that makes annual distributions equal to DNI
Cannot make charitable contributions
Exemption = $300

Question 13

What is a complex trust?

Answer 13

Satisfies one of these:
1) Less than DNI is distributed OR
2) Amounts are permanently set aside for charitable gifts OR
3) Distribution was made from principal
Exemption = $100

Question 14

What is Distributable Net Income?

Answer 14

Maximum amount that can be taxed to the beneficiary
Includes tax exempt income
Excludes capital gains

Question 15

What are examples of a present interest gift?

Answer 15

Annuity starting now
Outright ownership of property
Right to immediately receive dividends, rents, etc.
Cash in joint account once beneficiary withdraws money

$14K exclusion per person, $28K MFJ

Question 16

What are excluded from the definition of gifts?

Answer 16

Transfers to spouses
Support minors
Payments directly to school for tuition for another, does not include room and board
Payment directly to health care providers for another
Charitable contributions
Political contributions

Question 17

What is the lifetime gift and estate exclusion amount?

Answer 17

$5,450,000 @ 40%

Question 18

What is included in gross estate?

Answer 18

Cash and property owned by decedent
All gifts reported on tax returns made after 1976
Receivables, such as IRD
Revocable trusts
Life insurance proceeds that either are paid to estate or decedent retained power of ownership
1/2 property help jointly with spouse
All property held jointly with other, only reduced by amount other can prove they paid

Question 19

What is the valuation of assets of the gross estate?

Answer 19

Usually FMV at the time of death, unless executor elects AVD

If elect AVD, assets are valued at FMV at the earlier of distribution date or 6 months from date of death

Question 20

What are allowable deductions for an estate?

Answer 20

State death taxes paid
Marital deduction - anything transferred to surviving spouse
Charitable deduction - must be authorized in will
Funeral expenses
Casualty and theft loss
Administrative expenses, unless executor waives right in order to deduct on 1041
Liabilities of the estate, include medical expenses owed unless executor waives right in order to deduct on 1040

Question 21

Where can medical bills of decedent be deducted?

Answer 21

Either Individual Return 1040 OR Estate Return 706

Normally goes on 706 but can be waived to go on 1040

Question 22

Where can executor fees be deducted?

Answer 22

Either Estate Income Return 1041 OR Estate Return 706

Question 23

Where can Income in Respect of Decedent be deducted?

Answer 23

Estate Income Return 1041 AND Estate Return 706

Question 24

What are differences between trusts and estates?

Answer 24

Trust - calendar year, due 4/15, quarterly estimates, exemptions = $300 simple/$100 complex

Estate - calendar or fiscal year, due 3.5 months after end of year, no estimates for first 2 years, exemption = $600