R6 - Trust and Estates

Question 1

What is a fiduciary?

Answer 1

A person in a position of a special confidence that holds property for which another has a beneficial interest and/or receives and controls income for another. Ex. Trustee (trust) Executor (Estate)

Question 2

What are the two taxes that Estates are subject to?

Answer 2

1. Income tax: While Estate is in existence

2. Estate tax: one-time tax based on the value of the decedent’s Estate,

Question 3

How do you calculate DNI?

Answer 3

Estate/Trust Gross Income (included cap gains)
(-) Estate/Trust Deductions
(=) Adjusted Total Income
(+) Adjusted Tax-Exempt Interest
(-) Cap Gains (attrib to corpus; stay in principal; taxed to estate/trust) **
(=) DNI
** Double check this one, because it might not be a deduction per se, but an exclusion in the formula.

Question 4

Deductions on a 1041

Answer 4

• Trustee/Executor’s fees

- Charitable Contributions (provided for in a will)

Question 5

What is adjusted tax-exempt interest?

Answer 5

• TE interest income - Interest Expense and other investments related to TE interest income
• Treat like gambling losses

Question 6

Income Distribution Deduction for Estate/Trust

Answer 6

Lesser of:

• Actual distribution to beneficiary (without ALL TE income) OR
• DNI (without just TE interest income)

Question 7

What are the tax rates ranges for a 1041?

Answer 7

10%-37%

Question 8

When is a Estate tax return required to be filed?

Answer 8

When annual gross income is >$600, and no std deduction allowed.

Question 9

What is the tax year for a Estate?

Answer 9

• Calendar Year (due April 15)

- Fiscal Year (you can die anytime).

Question 10

Estimated payments?

Answer 10

Not required for first two years

Question 11

What is the tax year for a Trust?

Answer 11

• Calendar Year

Question 12

DNI for Trusts only

Answer 12

A trust may deduct amounts distributed to beneficiaries up to DNI less adj tax exempt interest income

Question 13

What are the deductions to arrive to DNI allowable for a trust? Most common tested

Answer 13

• Administrative, management, preservation of trust (real estate taxes).
• Allowance for depreciation on extraordinary repairs.
• Other regular deductions.

Question 14

What is a simple trust?

Answer 14

• Only makes distributions out of current income.
• Is required to distribute all of its income currently.
• Can’t take charity deduction.
• Has a $300 exemption.

Question 15

What is a grantor trust?

Answer 15

• Where the grantor, the person that creates the trust, retain controls of it.
• Considered a DRE, and it is reported on the grantor’s 1040.

Question 16

What is a complex trust?

Answer 16

• May accumulate current income.
• May distribute principal.
• May deduct charitable contributions.
• Has a $100 exemption.

Question 17

Calculation of Trust Taxable Income

Answer 17

Estate/Trust Gross Income (included cap gains + TE income)
(-) Estate/Trust Deductions
(=) Adjusted Total Income
(-) Income Distribution Deduction
(-) Exemption ($100 complex or $300 simple)
(=) Trust Taxable income