Estates, Trusts & Gift Taxes Flashcards
What is Distributable net income? (DNI)
Maximum amount that can be taxed to the beneficiary, the rest is a tax-free distribution of principal.
What income and expenses are included in DNI?
DNI includes all of the income and expenses of a trust, including muni bond interest.
What can be deducted from gross estate?
All administrative fees, state taxes, funeral expenses and paydown of decedent liabilities (loans, credit cards)
What is income vs principal of a trust?
Income would be considered income statement items while Principal would include balance sheet items.
Income-expenses, taxes, cash dividend
Principal-Original property, bonds (accrued interest), capital gains, mortgage principal payments, stock dividends/splits.
What are the conditions for a trust to be a “Valid express trust?”
B-beneficiary must be identitied
R-reasonable intent, ie a valid reason
A-assets, the trust must contain some corpus or
property
T-trustee, a trustee must be in place to exercise control
of the assets.
S-specified life. Private trust cannot live forever.
Charitable trust=lives forever (perpetuity)
What is a disadvantage of a revocable trust?
Upon death of the grantor, a revocable trust becomes irrevocable and is included in the gross estate of the grantor while bypassing the probate estate.
What is excluded from the definition of a taxable gift?
Gifts to spouse, support for minors, payments directly to schools for tuition for someone else and payments directly to health care providers for someone else, political contributions, transfers to qualified charitable organizations.
How is a gift of future interest taxed?
A gift of future interest must be reported, regardless of size at the present value of the future interest. (Any gift that is not immediately available to gift beneficiary.
What in included as accounting income for a trust?
All sources of income and expenses must be considered, but not income attributable to corpus.
What happens if distribution exceeds DNI?
The amount of DNI is taxable to the beneficiaries, and the remaining balance is a tax-free distribution of principal.
What are the different types of trusts?
Simple trust-Only distributes current income and not
principal.
Grantor trust- The trust’s creator retains a right to
withdraw trust assets.
Complex trust-Allows distribution of corpus (principal)
Revocable trust- Another name for grantor trust.
Are expenses of administering and settling the estate and state inheritance or estate tax deductible from a decedent’s gross estate?
Yes, they are both deductible on Form 706.
What is the standard deduction for an estate in the fiduciary income tax return?
$0. There is no standard deduction.
What is the personal exemption for an estate?
$600
What are valid deductions from a decedent’s gross estate?
Valid deductions from a decedent’s gross estate include funeral, medical and administrative expenses, payment for debts and mortgages, casualty losses, charitable bequests and state death taxes.
