Income Taxation of Estates and Trusts Flashcards
Notes:
Estate means yan yung mga Properties, Rights and Obligations
So diba, pag namatay ang tao (decedent), may mga maiiwan syang ari arian such as: house, appartments, receivable, libas etc.
So ang bottom line dito, yang mga naiwan na yan, may Income dyan such as rent income, interest, etc para sa mga heirs.
Hindi yung pag transfer ng Estate. Kasi sa Estate Tax pag uusapan yun! One kind of Transfer Tax yun diba (other is Donor’s tax)
Alisin mo muna sa isip mo yang pag transfer. Kasi, kahit ilang taon ang lumipas, pwedeng hindi pa itransfer (of titile) yang mga yan. So ang nangyayari, nag gegenerate lang sila ng income year by year.
Ok ok ok
Okay, gets mo na yung una? Now itimeline natin:
Jan 1
July 1 - Decedent Died
Dec 31
Resposible to pay tax:
Jan 1 - July 1: Yung responsible to pay taxes sa mga “Income” form Estate dito ay syempre yung owner, kasi buhay pa sya.
July 2 - Dec 31: Sino? Depende. Dito na papasok ang problema at mahalagang bagay. (See answer for further info, pero try mo muna sagutin syempre!)
So depende if may iniwan na LAST WILL OR TESTAMENT:
If meron, under JUDICIAL SETTLEMENT. With intervention of court. May administrator.
If wala, Extra Judicial Settlement ang mag aapply, meaning walang pakialam ang court.
So depende if may iniwan na LAST WILL OR TESTAMENT:
If meron, under JUDICIAL SETTLEMENT. With intervention of court. May administrator.
Okay, explain mo yung feature and rules nito. Mga bagay na mahalaga.
- Estates (income from estates) are taxed as if separate entity or individual. So the rules on taxable income, those subject to final tax, capital gains tax, the deductions and the rates are similar, EXCEPT:
a.
So depende if may iniwan na LAST WILL OR TESTAMENT:
If meron, under JUDICIAL SETTLEMENT. With intervention of court. May administrator.
Okay, explain mo yung feature and rules nito. Mga bagay na mahalaga.
- Estates (income from estates) are taxed as if separate entity or individual. So the rules on taxable income, those subject to final tax, capital gains tax, the deductions and the rates are similar, EXCEPT:
a.an Estate (as if individual) is required to obtain its own TIN
b. Distribution of the INCOME made to heirs shall be Deductible in computing taxable income of estate (as if individual)
c. Such Distribution shall be subject to 15% CWT and should be reported by heir as part of his personal taxable (regular) income
d. If what was given to heir is NOT PART of the income but part of the estate (such as land or house), hindi deductible yun! Syempre ano ka hilo.
e. The administrator or executor will be liable to pay the income tax liability of the estate (as if individual)
Sample computation for estate(as if individual):
GI xx
Allowable Deduction (xx)
Distribution (Special Deduction) (xx)
=NTI
Then idaan mo na yan sa ring of fire!
So depende if may iniwan na LAST WILL OR TESTAMENT:
If wala, Extra Judicial Settlement ang mag aapply, meaning walang pakialam ang court.
Explain the rules
- The rules on Co-ownership will apply
- No deductible sa Estate (as if individual)
- Distribute sa heirs yung lahat ng NI ng estate equally. Then apply co ownership rule
corpus means
principal
The property, rights and obligations of a person which are not extinguished by his death and those
which accrued thereto since the opening of succession
Estate
A person whose property is transmitted through succession, whether or not he left a will
Decedent
A decedent who has a will upon death
Testator
The person called to the succession either by the provision of the will or by operation of law
Heir
An heir who inherits PERSONAL PROPERTY by will is called
Legatee
An heir who inherits REAL property by will is called
Devisee
TorF
Where the estate is under judicial administration, the income of the estate shall be taxable to the fiduciary of trustee.
F
TorF
Where the estate is not under judicial administration, the income of the estate shall be taxable to the heirs and beneficiaries.
T
NOT TorF
Income received by the estate during the period of administration or settlement of the estate, for
tax purposes is known as
Income of the estate
TorF
The amount of income of the estate for the taxable year, which is properly paid or credited during such year to any legatee, heir or beneficiary, is a special item of deduction from the gross income of the estate.
T
TorF
An allowance paid to a widow or heir out of the corpus of the estate is not deductions from the gross income of the estate.
T
TorF
When an estate, under administration, has income-producing properties, the annual
income of the estate becomes part of the taxable gross estate.
F
TorF
When an estate, under administration, has income-producing properties and its income during the year is distributed to the heirs, the income so distributed is taxable to the heirs as part of their gross income for the year.
T
TorF
The items of gross income of the estate are the same items as the items of gross income of
individual taxpayers.
T
TorF
In addition to the allowable deductions under the Tax Code, the estate is allowed to deduct the amount of income of the estate during the taxable year that is paid or credited to the legatee, heir or beneficiary
T
TorF
The amount of income of the estate during the year that is paid or credited to the legatee, heir or beneficiary is subject to final withholding tax of 15%
F
The following cards are related to Income Tax of Trusts
So explain first what is Trust
Trust is the arrangement created by will or an arrangement under which title to property (cash, PPE, etc.) is PASSED TOANOTHER for consideration or investment with the income therefrom and ultimately the corpus to be distributed in accordance with the directions of the creator/trustor/grantor as expressed in the governing instrument.
Explain the three parties involved
Trustor/Grantor - The one who establishes the trust
Trustee/Fiduciary - The one in whom confidence is reposed as regards the property for the benefit of another person
Beneficiary - for whose benefit the trust has been established
Oright, now explain the two kinds of Trust:
Revocable
Irrevocable
Revocable
- one where at any time the power to revest (return) in the grantor title to part of the corpus of the trust in vested
-here, the trust in NOT CONSIDERED a separate taxable entity and the income from the corpus forms part of the taxable income of the grantor/trustor. Mismo. Kasi buhay pa sya
-Sa side naman ng beneficiary, part lang ng regular income nya pero walang CWT.
-So Trust - 0; Grantor - Yung NTI mismo; Beneficiary - Personal income plus income distributed from trust
Irrevocable
-Where no such right (to revest or return) exists or cannot exercised after an agreed period
-Here, the trust itself is considered a separate taxable entity from grantor and is TAXED SIMILAR TO AN ESTATE UNDER JUDICIAL SETTLEMENT
-Pati sa beneficiary parehas din (may CWT)
Explain if two or more trusts: In the event that a Fiduciary/Trustee holds two or more trusts form SAME GRANTOR with SAME BENEFICIARY
the income tax shall be consolidated for such trusts. Accordingly, the gross income and deductions are consolidated as if they are form one property
BUT, AFTER KNOWING THE CONSO TAX PAYABLE. AND THE PROBLEM ASK YOU HOW MUCH TAX DUE FOR EACH TRUST, I PRORATA MO LANG YUNG CONSO TAX PAYABLE SA INCOME NG EACH TRUST
TorF
For a trust to be taxable it must be irrevocable, both as to corpus (principal) and income
T
For income tax purposes, any person or corporation that holds in trust an estate of another person
or persons
Fiduciary
The person for whose benefit the trust has been created
Beneficiary
The person in whom the confidence is reposed as regards property for the benefit of another person
Trustee
The person who establishes a trust
Trustor
An arrangement under which title to property is passed to another for investment with the income
and ultimately the principal to be distributed in accordance with the direction of the creator is
A trust
