Reg Sec 5

Question 1

DNI
-not consider gifts
Fiduciary income

Answer 1

DNi-maximuml amount that can be taxed to the beneficiary, the rest is a tax free distribution of principal.
or max amount that can be tax + Gross Income (Municiple bond Interest)(no capital gains) -Trustee management fees(% of taxable income) and charity(100%)= DNI

-not consider gifts, transfers to spouses, transfers to charitable organization, political contributions, and payment of medical expenses or tuition of another.

Fiduciary income is taxable income to the trust and is calculated separately from DNI

Question 2

Trust vs Estates

Answer 2

-Trust are normally planned in advance, so its a calendar year taxpayer due 4/15.
Estates result from death of a person.(3 1/2 months after close of reporting year) may either be calendar year or fiscal year of decedent’s death.
-Trust and estates cannot claim standard deductions or dependent exemptions. Only personal exemptions of Complex-100, Simple-300 for trust, and Estates-600.

-Alternative valuation date is when the assets will be valued at six months after death (FV)

Estates taxes is require to be filed 9 months after death

Question 3

trust and Gift taxes

Answer 3

Each individual is allowed an exclusion of 14,000 for each gift given to a single individual. (If husband and wife chose to split the gift , they would each report the gift amount and each would get 14,000 exclusion or 28,00 together)

Gifts and inheritances are not taxable income of the recipient.

-Gift tax lifetime exclusion amounts are 5,340,000 @ 40% for 2014. Example if Gerald give his friend Fran $1,000,000 cash and Sold Pat a condo FV 2,000,000 for 500,000 and 2,000,000 transfer to Nellie =4,472,000 if Gerald makes reportable gifts of 1,000,000 he will have to pay gift taxes, since he has exceeded the cumulative lifetime exclusion.

If the trust is revokable it is included in the grantor’s gross estate.

Question 4

Creator of trust

-Types of Trust

Answer 4

When a creator of a trust retains the right to withdraw or revoke both income or interest then the Creator is taxed that year.

-Simple trust must distrubute only current income and not principal. Grantor trust the trust’s creator retains the right to withdraw trust assets. Complex allows the distribution of corpus. revocable trust is another name for a grantor trust.

Question 5

Included as accounting Income
Estate is required to file income tax return
Determining estate taxable income

Answer 5

All taxable and non-taxable income are included but no income or deductions attributed to Corpus.

• Estate is required to file income tax return when estate exceeds personal exemption of 600.
• When determining estate taxable income both charitable donations and funeral Expenses are both deductible

Question 6

Inherited property

Portability

Answer 6

Inherited property is the same as the value used for estate tax, the FMV at the death unless the estate elected the alternate valuation date.

portability refers to the ability take advantage of deceased spouse estate and gift tax credit is required to file an form 706

Question 7

Distributes excess of distributable net income

Answer 7

Trust income for year is 120,000. distributes in excess of 90,000 to A and 60,000 to B with 150,000 total. A will recognize, 60% of the 120,000 (90/150) which is 72,000.