R4- Estate Trust Taxation

Question 1

How is Gift taxation different from Estate taxation?

Answer 1

Property transferred while taxpayer is living

Question 2

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

Answer 2

$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

Question 3

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

Answer 3

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

Question 4

What is the basic Gift tax calculation?

Answer 4

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

Question 5

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

Answer 5

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

Question 6

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

Answer 6

Charitable Gifts

Unlimited Gifts to spouse

Political Campaigns

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

Question 7

What is the basis of Gifted property for the recipient?

Answer 7

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

Question 8

How/when are Gift tax returns filed?

Answer 8

Calendar-year basis only

Due April 15

Question 9

What are the basic characteristics of Complex Trust?

Answer 9

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

Question 10

What are the basic characteristics of a Simple Trust?

Answer 10

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

Question 11

How are Net Operating Losses handled in a Trust?

Answer 11

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 12

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

Answer 12

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

Question 13

When is property transferred in an Estate?

Answer 13

After the death of the donor

Question 14

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

Answer 14

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

Question 15

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

Answer 15

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

Question 16

How is an Estate’s NOL handled?

Answer 16

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 17

What does a Gross Estate consist of?

Answer 17

Cash and Property FMV at death, or alternate valuation.

Question 18

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

Answer 18

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

Question 19

What is tenancy by entirety?

Answer 19

1/2 of marital assets go to deceased spouses Estate

Question 20

What is tenancy in common in an Estate?

Answer 20

A, B, and C own property

If A dies, FMV of As share goes to heirs

Question 21

How is Estate tax handled with respect to a beneficiary?

Answer 21

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

Question 22

What is distributable net income (DNI)?

Answer 22

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

Question 23

What are the three requirements for a gift?

Answer 23

Intent for it to be a gift

Delivery of the gift

Acceptance of the gift

Question 24

What is the Distributable Net Income Calc.?

Answer 24

Estate Gross Income
+ Adj. Tax
- Exempt interest

= DNI

Question 25

Income distributed to the beneficiaries retains the same character as?

Answer 25

• The Income had as the Fiduciary level

- Same as occurs in Partnership Taxation

Question 26

The Income Distribution Deduction Equals the Lesser of the Following:

Answer 26

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

Question 27

An Estate may elect to have either a:

Answer 27

• Calendar Year: Tax Return due on April 15th

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

Question 28

An Estate is exempted from making estimated tax payments for?

Answer 28

• Its first 2 tax years

Question 29

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

Answer 29

• Calendar Year that Ends Dec. 31st

Question 30

A Trust may deduct amounts distributed to beneficiaries up to?

Answer 30

• The Distributed Net Income LESS Adj tax-exempt interest

Question 31

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

Answer 31

• The Grantor: Individual who established the trust

Question 32

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

Answer 32

• Form 706 must be filed within 9 Months after the decedent’s death

Question 33

When is Life Insurance Proceeds includable in the Estate Value?

Answer 33

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

Question 34

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

Answer 34

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

Question 35

What are the 2 Discretionary Expenses?

Answer 35

• Unlimited Charitable Deduction

- Unlimited Martial Deduction

Question 36

What is considered to be Incomplete Gifts?

Answer 36

• Conditional Gifts- conditions precedent

- Revocable Gifts- Reserves the right to revoke the gift

Question 37

The Generation-skipping Tax is designed to?

Answer 37

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

Question 38

When does the Generation-skipping Tax apply?

Answer 38

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

Question 39

Income in respect of a cash basis decedent:

Answer 39

• Covers income earned before the taxpayer’s death but not collected until after Death

Question 40

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

Answer 40

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

Question 41

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

Answer 41

• Applicable Credit

- Prior Gift Taxes Paid