REG 5 - Trusts and Estates

Question 1

What are the two taxes estates are subject to?

Answer 1

1) Income tax

2) Estate tax

Question 2

What is Distributable Net Income (DNI)? What is the calculation?

Answer 2

A limitation on the amount the trust or estate can deduct on Form 1041.

Estate (trust) gross income
Less: estate (trust) deductions
= Adjusted total income
\+ Adjusted tax-exempt interest
Less: capital gains
= DNI

Question 3

What is the limit for charitable contributions in an estate or trust?

Answer 3

Unlimited charitable deduction is allowed if contributions are provided for in a will

Question 4

What is the income distribution deduction? What is the calculation?

Answer 4

The income distribution deduction equals the lesser of:

1) Actual distribution to beneficiary

OR

2) DNI

Question 5

When is a tax return required for an estate? What is the exemption for an estate.

Answer 5

The exemption amount for an estate is $600. Likewise, an estate must have income that exceeds $600.

Question 6

What is the year-end for an estate? When is the tax return due for an estate?

Answer 6

Estate elects year-end

• Calendar year - April 15th
• Fiscal year - Due 15th day of the fourth month after year-end

Question 7

How long is an estate exempted from making estimated tax payments?

Answer 7

First two tax years

Question 8

What is the ONLY tax a trust is subject to?

Answer 8

The only tax a trust is subject to is INCOME TAX

Question 9

What is the year-end for a trust?

Answer 9

CALENDAR YEAR ONLY

Question 10

What is the criteria for simple trusts?

Answer 10

• Can only make distributions out of current income
• Required to distributed all of its income currently
• CANNOT make distributions from principal
• CANNOT take a deduction for a charitable contribution
• Entitled to a $300 exemption

Question 11

What is the criteria for complex trusts?

Answer 11

• May accumulate current income
• May distribute principal
• May deduct charitable contributions
• Permitted an exemption of $100

Question 12

What are grantor trusts?

Answer 12

• Disregarded entity (put on individuals return)

- Individual who established the trust retains control (can change beneficiaries at any time)

Question 13

What is accounting income? What is corpus?

Answer 13

Accounting income is anything that is not corpus. Corpus is capital gains and trustee fees.