R4- Estate Trust Taxation Flashcards by Nora Franco

How is Gift taxation different from Estate taxation?

Property transferred while taxpayer is living

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What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?

$14,000 per year per spouse to each individual

In order to get the exclusion:
- The recipient must immediately acquire a present interest in the property
&
- Get unrestricted access to the property and all of its benefits

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If a Gift is an annuity, what value is used for the Gift?

If the Gift is an annuity, use Present Value to determine the gross Gift

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What is the basic Gift tax calculation?

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $14,000 exclusion
= Taxable Gift

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How is a Gift taxed if a recipient gains a future ownership in the Gifted property?

Recipient must gain ownership and all rights to property to get the annual exclusion.

If recipient merely gains a future ownership:
- Then the present value of the Gift is 100% taxable to donor
&
- Cannot exclude from Gift tax calc

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What are the Unlimited Deductions for Gift tax, besides the annual exclusion?

Charitable Gifts

Unlimited Gifts to spouse

Political Campaigns

Tuition & Medical expenses paid directly to the provider organization
(note: NOT books or dorm fees)

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What is the basis of Gifted property for the recipient?

If a loss on sale, basis is FMV on the date of the Gift

If a gain on sale, basis is same as donor’s basis

No G/L if donor basis is less than sales price, and sales price is less than FMV @ Gift date

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How/when are Gift tax returns filed?

Calendar-year basis only

Due April 15

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What are the basic characteristics of Complex Trust?

Income/ Principal distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100

Key Point: Distribution of Trust corpus (principal) ok

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What are the basic characteristics of a Simple Trust?

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

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How are Net Operating Losses handled in a Trust?

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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How are expenses and fees related to tax-exempt income handled in a Trust?

Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust

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When is property transferred in an Estate?

After the death of the donor

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What amount of a decedent’s Estate is exempt from Estate Tax?

The First $5,250,000 is exempt with a 40% tax on amount above that

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How are a decedent’s medical expenses handled with respect to an Estate?

Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return

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How is an Estate’s NOL handled?

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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What does a Gross Estate consist of?

Cash and Property FMV at death, or alternate valuation.

What is joint tenancy with respect to an Estate? How is it calculated?

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

What is tenancy by entirety?

1/2 of marital assets go to deceased spouses Estate

What is tenancy in common in an Estate?

A, B, and C own property

If A dies, FMV of As share goes to heirs

How is Estate tax handled with respect to a beneficiary?

Property received through inheritance not income to recipient

Property value is FMV at date of death or 6 months later

If property is sold prior to 6 month date and the alternative date is used, FMV at date of sale is used to value property

Basis in property automatically assumes LT holding period

What is distributable net income (DNI)?

DNI = Taxable Income Expenses (from income production)

Trust beneficiaries only pay tax if earnings are distributed

Estate beneficiaries pay tax on DNI, regardless if distributed

What are the three requirements for a gift?

Intent for it to be a gift

Delivery of the gift

Acceptance of the gift

What is the Distributable Net Income Calc.?

Estate Gross Income
+ Adj. Tax
- Exempt interest

= DNI

Income distributed to the beneficiaries retains the same character as?

- The Income had as the Fiduciary level | - Same as occurs in Partnership Taxation

The Income Distribution Deduction Equals the Lesser of the Following:

- Actual Distribution to Beneficiary OR - Distributable Net Income (Less adj tax-exempt interest)

An Estate may elect to have either a:

- Calendar Year: Tax Return due on April 15th | - Fiscal Year: Tax Return due 15th day of 4th month after yr-end

An Estate is exempted from making estimated tax payments for?

- Its first 2 tax years

All Trusts, except tax-exempt trusts, must use what tax year?

- Calendar Year that Ends Dec. 31st

A Trust may deduct amounts distributed to beneficiaries up to?

- The Distributed Net Income LESS Adj tax-exempt interest

In a Grantor Trust, Who retains control over the trusts assets?

- The Grantor: Individual who established the trust

When is the Filing deadline that an Estate must file when Gross Value of the estate exceeds the limit of $5,250,000?

- Form 706 must be filed within 9 Months after the decedent's death

When is Life Insurance Proceeds includable in the Estate Value?

- If the deceased/estate is the beneficiary OR - Had incidence ownership at death

What are the Administrative Expenses that a Gross Estate can deduct?

- Outstanding Debts of Decedent - Claim against the Estate - Funeral Costs - Certain Taxes

What are the 2 Discretionary Expenses?

- Unlimited Charitable Deduction | - Unlimited Martial Deduction

What is considered to be Incomplete Gifts?

- Conditional Gifts- conditions precedent | - Revocable Gifts- Reserves the right to revoke the gift

The Generation-skipping Tax is designed to?

- Prevent an individual from escaping an entire generation of Gift & Estate Tax. - A Separate Tax

When does the Generation-skipping Tax apply?

- Transfer property to a person who is 2 or more generations younger then the donor or transferor.

Income in respect of a cash basis decedent:

- Covers income earned before the taxpayer's death but not collected until after Death

Ordinary & Necessary Adms. Expenses paid by the estate are deductible:

- On the Fiduciary Income Tax Return only if the Estate Tax Deduction is waived for these expenses

What may offset against the calculated amount of tentative estate tax to determine the estate tax playable with the estate tax return?

- Applicable Credit | - Prior Gift Taxes Paid