Estates, Trusts and Gift Taxes Flashcards
Trust and estate must file what
Tax Return
1041
What is the difference between Estate Income Tax and Estate Tax
Estate Income Tax - 1041 paying tax on the estate and trust on whatever is not distributed - every year
Estate Tax - Valuation Tax - paid once when you die
What is the difference between a 706, 709, 1041
1040 - individual tax return when you are alive
709 - you are alive and give more than 14K per year - this is a gift tax return
706- after you die - 9 months after your death - pay taxes on your estate - 40-50%
1041 - filed in all years after your death until all the money is distributed to people
K-1 - money that is distributed that has not been taxed - gets taxed to you
Who get what:
Cash Dividends Interest Income Rental Income and Expense Property Taxes Insurance premiums Depreciation Muni Bond Interest Assets Proceeds from Sale of corpus Capital Gains and losses Stock Dividends Mortgage premiums Capital Improvements Insurance proceeds
INCOME: Cash Dividends INCOME: Interest Income INCOME: Rental Income and Expense INCOME:Property Taxes INCOME:Insurance premiums INCOME:Depreciation INCOME:Muni Bond Interest
REMAINDER: Assets REMAINDER: Proceeds from Sale of corpus REMAINDER: Capital Gains and losses REMAINDER: Stock Dividends REMAINDER: Mortgage premiums REMAINDER: Capital Improvements REMAINDER: Insurance proceeds
Do you have to have a successor trustee
NO - they do not have to be designated
What is a grantor trust
This is a revocable trust . For tax purposes - NOT a Valid rust so all money is on the Creators return, not on the trust tax return
What is a living Trust
Set Up While you are Alive and immediately becomes effective
What is a Simple Trust
- must distribute all annual income to the beneficiaries
- No charity
- Income from trust is taxable to recipient (K1)
but the corpus holds the Principle
-Capital Gains also stay in the trust and become part of the corpus
Complex Trust
1) Retains income in the trust
2) distributes Corpus
3) charity
For an estate the initial tax period is calculated how
The estate can select a calendar year or fiscal year that begins on the date of their death
What is the unified rate schedule
lifetime taxable gifts and transfers at death are taxed on a cumulative basis
This is when taxable gifts and taxable estate at the time of death are put together. Then you subtract the lifetime unified transfer tax credit ( 5,4M) Then you pay taxes on the amount above it
When are life insurance policies INCLUDED in a persons estate - 2 conditions
1) the proceeds are paid directly to the estate
2) the descendant owns the policy and the ability to rename the beneficiary
ALL other times the policy is EXCLUDED from the gross estate
What does it mean when a husband and wife split monetary gifts
This means you can give up to 1 individual the amount allowed to the husband and wife - so 15 + 15 = 30 per individual
What is the unified Tax credit
This is the amount you can gift during your lifetime before any estate tax kicks in 10M
What is a marital deduction an dhow does it work
This is applied to an estate to reduce the amount subject to estate tax
It is the amount that is bequeathed to a surviving spouse
What do you file if you die and you made lifetime gifts that would normally go on a 709
In the year you die you do NOT need to file a 709
Instead any taxable gifts given in that year will go on their 706 if they are more than their lifetime exclusion
How do you value assets sold before and after the AVD when you select the AVD
AVD is 6 months after death. The valuation is applied to all assets remaining in the estate at that time
If any were sold before that date - they are valued at their sales price
What are valid deductions from a decedents gross estate
charity marital deductions funeral medical mortgages casualty losses state death taxes
what is the exemption for simple trust
300 EXEMPTION - no standard deduction
What is the exemption for a complex trust
100 EXEMPTION not standard deduction
What is the exemption for an Estate or trust - also called a fiduciary income tax return
600 EXEMPTION - not standard deduction
What is joint tenancy
This is the ownership of property by two or more people with each having an undivided interest in eh property
This means that upon the death of one - the share goes directly to the other joint tenant - not the deceased estate
When you five a gift to child in the furture what is taxable
Only present interest ( immediately can be used) will qualify for the annual exclusion (15K)
The gift is a future gift and therefore fully taxable
Does it matter if money is included in a fiduciary income tax return when you calculate the gross estate
No - income from a decedent is includable in the estate regardless of whether it was also on there income tax return
What is income n respect to the descendent
ncome in respect of a decedent is income that is paid into a decedent’s estate that was earned by the decedent prior to the date of death and would have been included in the decedent’s taxable income if it had been paid prior to death.
Gift or not?
Transfer to spouses
No a gift - not need for gift tax return
Gift or not?
Transfer to charitable org
Not a gift - no return needed
Gift or not:
political contribution
Not a gift - no need for a gift tax return
Gift or not: payment of medical expenses
Not a gift - no need for a gift tax return
Gift or not: payment of tuition for another
Not a gift - no need for a gift tax return
Gift or not: Payment ot a university for a cousins room an board
a Gift - need for a gift tax return
What are the rules of portability of a deceased spouses unused lifetime exclusion amount
Thi sis when the surviving spouse is able to still take advantage if any unused portion of their dead spouses unified estate and gift tax credit
In order to do so - the estate must file a 706 form,
The credit is applied to gifts given during the surviving spouses lifetime
Do estate and trustshave to use a calendar year
An estate initial tax period can be either the calendar year or a fiscal year beginning on the date of death
Trusts that re subject to income tax are required to use a calendar year
What must a trust have to be considered simple
It must distribute ALL its income to the beneficiaries each year
No charity
Can distribute the corpus ( includes capital gains
can a trust be simple in some years and complex in orders
yes it can
What are the rules for charity deductions
- must be to a qualified charity
- can be from gross income or permanently set aside funds for such contributions
- it need sot be specifically stated in eh will to do this
Is a trust able to deduct commissions for the purchase of assets that produce tax exempt income
No - no tax payer can because it is tax exempt
when can you claim deductions for admin expenses by the fiduciary of an estate
Administrative expenses of an estate can be deducted in arriving at the net taxable estate on the estate tax return; may be claimed as a deduction on the estate (fiduciary) income tax return; or may be allocated between the two returns, as long as the same expense deduction is not duplicated on both returns.
Thus, any expense claimed on the fiduciary income tax return requires that the available deduction on the federal estate tax return be waived.
