Trusts and Estates

Question 1

Amount of distribution was taxable to the beneficiary

Answer 1

the amount of income an estate beneficiary reports from the estate is limited by the estate’s distributable net income

the received cash over the amount of taxable income is treated as a nontaxable distribution of principal

Question 2

Income taxation rules for Estate and Trust DNI

Answer 2

Estate trust gross income

= Adjusted total income
+ Adjusted tax exempt interest*

= DNI

Deductions:

• management or conservation of income producing property (including the trustees or executors fees)
• contribution to a charity ( an unlimited charitable deduction is allowed if such contributions are provided for in a will.

Question 3

Complex Trust vs Simple Trust

Answer 3

Complex trust may accumulate current income, distribute principal, and provide for charitable contributions.

Simple trusts may only make distributions from current income (not corpus, or principal), must distribute all income currently and may not make charitable contributions. Entitled to $300 exemption.

Either trust may have more than one beneficiary, have a grantor that is not an individual, or have beneficiaries that are not individuals.

Question 4

Annual Trust Income Tax Return (1041) Calendar year = I trust you will remember 12-31 is year

Estates = Anytime the government les you die “anytime”

Answer 4

Calendar year = I trust you will remember 12-31 is year end

Question 5

Annual Estate Income Tax

Answer 5

Required when Annual Income Exceeds $600
- the exemption for an estate is $600
- no standard deduction is allowed
Tax Year
- calendar year tax return is due on April 15
- fiscal year tax return is due on the 15th day of the fourth month after year end
Estimated Payments
- an estate is exempted from making estimated tax payments for its first two tax years

Question 6

Grantor Trust

Answer 6

when the creator is treated as the owner of the trust, it is referred to as a grantor trust