R4 - big topic 3/3 - Estate, Trust and Gift

Question 1

I. Overview

Answer 1

Fiduciaries - trust and estates are separate entities.

Fiduciaries Accounting - Classification of all receipts as either 1. Principal (Corpus) OR 2. Income.

Question 2

II. Income taxation rules for estates and trusts

• DNI
• Income distribution deduction (lessor of actual distribution or DNI)

Answer 2

1. DNI (distributable Net income)
   DNI is a LIMITATION on the amount the rust or estate can deduct to beneficiaries.

CORE FORMULA
Estate/Trust Gross Income
- (Estate/Trust Deductions)
= Adjusted Total Income
\+ Additional Tax Exempt Interest
- (Capital Gains)**
= DNI

Gross income = same as individual income + capital gain
Deductions = **include contribution to charity (in will)
**(Capital Gain) = Gain Attributable to principal/corpus

Income Distribution Deduction = LESSOR of Actual distribution or DNI