REG - Tax - Other Flashcards
What is the basis of property/shares given to a decedent as a gift within 1 year of death and this property passes back to the donor or donor’s spouse?
A special rule applies - the beneficiary’s basis is the basis of the property in the hands of the decedent before death, rather than FMV at date of death. Since decedent received stock as gift, basis before death was the same as how much the donor acquired for, and this becomes the basis of the stock back to donor.
To whom is trust’s income taxable? Example - grantor has retained a discretionary power to receive income.
When the grantor of a trust retains substantial power over the trust, such as the power to revoke the trust or a discretionary power to have trust income distributed to the grantor or grantor’s spouse, the income from the trust will be taxed to the grantor. So even if the beneficiary is someone else, since grantor has discretionary power to receive trusts’ income, all of trusts’ income is taxed to grantor.
What are rules regarding the alternate valuation with regard to decedents dying before Jan 1, 2010?
An executor may elect to use FMV at alternate valuation date (at date of disposition NOT at date of death) (generally a date 6 months subsequent to the decedent’s death) only if such election will reduce both the gross estate and the federal estate tax liability.
The alternate valuation election is irrevocable and applies to all property in the estate; it cannot be made on an individual property basis.
How much can be given without incurring a gift tax liability?
$13k gift tax exclusion
For gift tax, there is an unlimited marital dedn that applies to gifts to a taxpayer’s spouse after first subtracting the annual exclusion. Thus, the $1M gift to spouse is fully offset by an annual exclusion and marital dedn and does not result in a taxable gift.
If gift is elected as split by spouses, the amount is split in half and each spouse is eligible for 13k exclusion. The amount less the 13k would be the taxable gift for one spouse.
What is a complex trust?
Complex trust permits accumulation of current income, provides for charitable contributions, or distributes principal during the taxable year.
It is subject to income tax on the trust’s taxable income.
There are no required investment restrictions imposed on a complex trust.
A complex trust is one in which the trustee 1-has the discretion whether to distribute or accumulate income, 2-may make charitable contribs, 3-may distribute trust corpus. The number and type of income beneficiaries and the type of grantor have no effect on a trust’s classification as a complex trust.
When does a gift occur when a joint account is created?
A gift does NOT occur when the account is opened and money deposited.
A completed gift results when the noncontributing tenant withdraws money from the account for his own benefit.
What does a decedent’s gross estate include? When is trust property with an independent trustee includible in grantor’s gross estate?
A decedent’s gross estate generally includes all property in which the decedent had an ownership interest at time of death, including the value of revocable transfers, as well as all transfers over which the decedent had, at the time of death, the power to change the enjoyment of what was transferred by altering, amending, revoking, or terminating an interest.
A decedent’s gross estate would include the value of a revocable trust at its date of death or alternate valuation date value.
A trust with an independent trustee that was established for a minor would be excluded from a grantor’s gross estate.
What is corpus?
Corpus is capital of the trust, equal to the market value of property settled on a trust at the date of settlement.
What is allowed for a simple trust?
A simple trust is allowed a personal exemption of $300, but is not eligible for a standard dedn.
A simple trust is not allowed to make charitable contribs, and brokerage commissions for the purchase of tax exempt bonds would not be deductible because they represent an expense incurred in the production of tax exempt income.
Note trusts are not eligible for standard deduction.
How are medical expenses incurred before death treated when paid by executor of estate if executor files the appropriate waiver?
The executor may elect to treat medical expenses paid by the decedent’s estate for the decedent’s medical care as paid by the decedent at the time the medical services were provided. To qualify for this elect, the medical expenses must be paid within the 1 year period after the decedent’s death, and the executor must attach a waiver to the decedent’s form 1040 indicating that the expenses will not be claimed as a dedn on the decedent’s estate tax return.
What is an estate’s distributable net income (DNI) and what amount can be claimed on the estate’s fiduciary income tax return for the distributions dedn?
Example - DNI was 15k, 9k paid to sole beneficiary.
An estate’s DNI represents the max amount of available distribution dedn, and the max amount on which beneficiaries can be taxed.
Since only 9k was distributed to beneficiary, only 9k can be claimed on the estate’s fiduciary income tax return as a distribution dedn, and only 9k wil be taxed to the beneficiary.
How can you calculate exclusions for gift tax purposes?
Gifts to 3 different ppl, 15k for down pmt on house, 14k for college, 5k for vacation
Pmt made to university on behalf of grandchild
In computing a donor’s gift tax, the first 13k of gifts of a present interest made to a donee during a calendar year is excluded in determining the amount of the donor’s taxable gifts.
In this case, 13/15, 13/14, and 5 for a total of 31k can be excluded.
There is an unlimited exclusion for tuition or medical expenses paid on behalf of a donee. 25k tuition paid directly to a grandchild’s university is fully excluded and does not result in a taxable gift.
What are the different types of trusts?
Complex is one in which the trustee 1-has discretion whether to distribute or accumulate its income, 2-may make charitable contribs, 3-may distribute trust principal.
Simple 1-is required to distribute all of its income each year, 2-cannot make char contribs, 3-cannot make distributions of trust principal.
If the creator of trust retained no powers over the trust, it cannot be a grantor trust or revocable trust.
What is included in the gross estate from property held in joint tenancy.
The gross estate includes the FMV of all property in which the decedent had an ownership interest in at the time of death. In the case of property held in joint tenancy that was acquired by purchase by other than spouses, the decedent’s estate must include the FMV of the property X the % of total cost furnished by the decedent. If she furnished 10/40k = 1/4 of the land, the estate should include 25% of the FMV at time of death
When must a federal estate tax return be filed?
An executor must file a federal estate tax return (form 706) if the gross estate of a decedent exceeds $5m.
If a decedent made lifetime taxable gifts such that the decedent’s tax credit was used to offset gift tax, the $5M exemption amount must be reduced by the exemption equivalent of the unified credit that was used.
