R6 Trust & Gifts

Question 1

Simple trust vs. complex trust

Answer 1

Simple trust:

• only make distribution of current income
• require to distribute all of its income currently
• Can not take deduction of charitable contribution
• entitled to $300 exemption

Complex trust

• may accumulate current income
• may distribute principal
• may deduct charitable contributions
• exemption of $100

Question 2

Gift tax

Answer 2

= tax paid by the person GIVING the gift
no tax for the person receiving the gift (NBV)

• 15k exclusion per person, per year to anyone
• lifetime combined gift and estate tax exclusion of $11,700,000
• not available for a gift of a future interest
• spouse can do gift slipt and are allowed 30k exclusion

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Unlimited exclusion 
Paid directly, not given to a child 
- education institution 
- medical care 

• charitable gifts
• martial deduction

Question 3

Gift tax Issues
1. Present vs. Future

1. Present vs. Future
2. Complete vs. Incomplete

Answer 3

1. present vs. future
2. 1 Future Interest Gifts ( Does not qualify for exclusion)
   - reversion ( gifting asset and later getting back the property)
   - remainders (distributed at some future time)
   - trust income interest - accumulation of income is mandatory
   - present interest without ascertainable value

……………………………….

1. 2 Present Interest Gifts (qualifies for exclusion)
   - outright gifts
   - trust income interest - distribution is mandatory
   - life estates
   - estates for a term certain
   - bonds or notes
   - unrestricted transfers of life insurance policies

Question 4

Gift tax Issues
2. Complete vs. Incomplete

1. Present vs. Future
2. Complete vs. Incomplete

Answer 4

2. Complete vs. Incomplete
3. 1 Complete gifts : taxable
4. 2 Incomplete gifts : not subject to gift tax
   - subject to conditions present

• revocable gifts: reserves rights to revoke or change the beneficiaries (e.g life insurance policies)

Question 5

M2: Tax-Exempt organization

Answer 5

• still required tp file inforamtion returns

Types:

1. Section 501(c) org
   - organized under an act of congress
   - must make written application for exempt status
2. Section 501(c)(2)
3. Section 501(c)(3)
   - public charities & private foundations
   - org must apply for tax-exempt status and be approved by the RS to be listed as exempt org

Requirement

• may not be nonexempt activities
• (propaganda, influence legislation _
• not directly participate or intervene in any political campaign

…………………………………..

3. 1 section 509 private foundations
   - excluded from the private foundation:
   a) max (60%) charitable deduction donees
   b) broadly publicly supposed org receveing more that one thrid of their annual support from members of public and less that one third from investment income and unrelated business income
   c) supporting organizations
   d) public safety testing organization

Question 6

M2: Unrelated Business Income (UBI)

Answer 6

• subject to regular corp income tax
• constitutes trade or business
• regularly carried on
• not substantially related to org tax-exempt purpose

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excluded from UBI ( not taxed) 
- bingo games ( game of chance) 
- convenience of org 
- trade show
- rental of membership lists
- sale for merchandise received as gifts 
- sale fo articles made by disabled person 
= unpaid volunteer  

…………………………………………..
excluded types of income: not taxed
- dividends, interest, annuities
-royalties
-rent from real property
- income from research
- gains and losses of property not held primarily for sale

membership organizations:
social club and homeowners associations taxed on gross income less deductions
- social club makes profit then profit is taxable