R4- Estate Trust Taxation Flashcards
How is Gift taxation different from Estate taxation?
Property transferred while taxpayer is living
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
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
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
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
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)
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
How/when are Gift tax returns filed?
Calendar-year basis only
Due April 15
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
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
How are Net Operating Losses handled in a Trust?
Trusts can have a Net Operating Loss
Any unused NOL flows through to the beneficiaries
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
When is property transferred in an Estate?
After the death of the donor
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
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
How is an Estate’s NOL handled?
Estates can have a Net Operating Loss
Any unused NOL flows through to the beneficiaries
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
