M6 Trusts and Estates

Question 1

Definition. A person in a position of special trust and confidence toward another who does one or both of the following

• holds property for which another persona has beneficial title or interest and/or
• receives and control of another

-2 Examples

Answer 1

Fiduciaries

• Trust = trustee
• Estate = executor

Question 2

Two separate taxes of Estates

Answer 2

1) Income tax

2) Estate tax (one time only)

Question 3

Definition. Limitation of the amount the trust or estate can deduct (on line 18 of form 1041) with respect to distributions to beneficiaries

Answer 3

Distributable Net Income (DNI)

Question 4

Calculation of DNI

Answer 4

Estate (trust) gross income (includes all capital gains)

	-------------------------------
	Adjusted Total income
	\+Adjusted tax-exempt interest
	 (attributable to corpus)
	-------------------------------
	Distributable Net income (DNI)

NOTE - the capital gain is ultimately deducted back out so capital gains are NOT included in the DNI

Question 5

Income distribution deduction amount

Answer 5

LESSER OF

1) Actual distribution to the beneficiary OR
2) DNI (less adjusted tax-exempt interest)

Question 6

Estate and Trust tax form

Answer 6

1041

Question 7

Definition. Legal entity that comes into existence upon the death of an individual and continues to exist until all assets are distributed

Answer 7

Estate

Question 8

Estate and trust income tax. If taxable income is over 12,500, what is the tax rate?

Answer 8

39.6% (highest reached quickly)

Question 9

When is the estate tax return form 1041 required to be filed (aka the estate exemption amount)?
Which deduction is NOT allowed?

Answer 9

When income exceeds $600 (exemption amount)

NO standard deduction

Question 10

Tax year for an estate and due dates

Answer 10

ANYTIME
Calendar year due April 15
15th day of the fourth month after FYE

Question 11

Estimated payments of estate?

Answer 11

Exempt from making them for the first two years

Question 12

Tax year for TRUSTS?

Answer 12

MUST USE a calendar year end

“I TRUST you will remember 12/31 is the year end”

Question 13

Trust Types. Only makes distributions out of current income

• cannot take which deduction?
• exemption amount?

Answer 13

SIMPLE trust

• NO charitable contribution deduction
• $300 exemption

Question 14

Trust Types. When the individual who established the trust retains control over the trust assets

Answer 14

Grantor Trusts

Question 15

Trust Types. Trust that can accumulate current income, distributes principal from the corpus and can deduct charitable contributions.
-Exemption amount?

Answer 15

Complex Trusts

-$100 exemption