Tax Trusts and Estates

Question 1

Filing Requirements Estate

Answer 1

Form 1041 - Fiduciary Income Tax Form
Separate Entity
Can deduct -administration costs, accounting and attorney fees, and expenses for preparing return-taken on 1041 or 706

Filing - 15th day of the 4th month after Entity yr end!
Must file if: 
1. any taxable income that year
2. gross income of $600 or more
3. bene is a nonresident alien

can choose calendar tax year
fiscal tax year or
same accounting period as decedent
(600$ exemption on a short return)

ESTATE EXEMPTION $600

Question 2

Filing Requirement Trust

Answer 2

Form 1041 - Bene income reported on Schedule K-1

Filing - 15th day of the 4th month after Entity yr end!
Must file if: 
1. any taxable income that year
2. gross income of $600 or more
3. bene is a nonresident alien

calendar year returns except charitable trusts

Question 3

Distributions

Answer 3

Benes taxed on income received
Trust and Estate taxed on accumulated portion

Bene must report
all income required to be distributed
all amounts actually paid or credited up to benes net income

Question 4

Grantor Trust Rules

Answer 4

Is a grantor trust if:

1. Income may go- later to spouse
2. Income used/may be used to discharge debt of grantor
3. income actually used to discharge legal support of grantor
4. Power to control beneficial enjoyment of trust principal or income is held by grantor or grantors spouse
5. pay premiums on life insurance for grantor or grantors spouse (if gift pays ILIT not taxable)
6. Revisionary interest that exceeds 5%of trust value at the time of creation.
7. Administrative power held by grantor or spouse to deal with trust property for less than full consideration, to borrow without adequate interest, right to vote stock in corpus.
8. Right to income or enjoy property (if it has expired and no longer has that right…no Grantor retained interest)
9. Revisionary interest greater than 5 % at time of death

Question 5

Simple Trust

Answer 5

Trust is separate tax entity

Income distributed
Income/ deductions taxed to Bene
Normally no distribution of corpus
No charitable gifts

Question 6

Complex Trust

Answer 6

Income must or may be accumulated
Income accumulated taxed to trust
Income distributed taxed to bene
Corpus can be distributed
May make charitable gifts

Question 7

Revocable Trust

Answer 7

Inter vivos
Grantor trusts
avoids probate
most people name self as trustee
at death - become irrevocable or terminates (corpus distributed)

Transfer of property into trust does not constitute a taxable gift
All income earned taxable to grantor

Question 8

Irrevocable Trust

Answer 8

Completely gives up all rights to the property
grantor holds no rights to revoke, terminate, modify, trust

Non Grantor Trust

Taxed as simple or complex trust.

Deductions available

• charitable-complex trusts only
• Depreciation, cost recovery, depletion,
• net operating loss carry back and carry forward
• Administration expenses are allowed
• deduction for income it is required to distribute (whether or not it is actually distributed)

Complex trust required to distribute all in come exemption $300

Complex trust not required to distribute all income exemption $100

Question 9

Distributable Net Income

Answer 9

to avoid double taxation
Trust receives deduction in the same amount of DNI

Take the lesser of distributions or DNI