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5 - Estate, Trust, Gift

Terms in this set (60)

Estates file a Form 1041 - Fiduciary income tax return and a Form 709 - Estate Tax Return.
Estates file a Form 1041 - Fiduciary income tax return and a Form 709 - Estate Tax Return.
The value of your assets are valued twice: on the date of your death, and 6 months after the date of your death called the alternative valuation date.
The value of your assets are valued twice: on the date of your death, and 6 months after the date of your death called the alternative valuation date.
9 Months after death, Form 709 - Estate Tax Return is due. This is a tax on the value of your assets, either on the date of your death or on the A.V.D.
9 Months after death, Form 709 - Estate Tax Return is due. This is a tax on the value of your assets, either on the date of your death or on the A.V.D.
Allowed to give each gift limit each year tax free. If you go over annual limit, and also your lifetime exclusion amount, you will be taxed on the excess amount of the gift given.
Allowed to give each gift limit each year tax free. If you go over annual limit, and also your lifetime exclusion amount, you will be taxed on the excess amount of the gift given.
What is the purpose of a trust?
To benefit individuals or charities without giving them control of the principal of the trust.
A trustor puts assets into the trust. A trustee controls the assets. There are two types of beneficiaries, and they can be the same person. Income and principal.
A trustor puts assets into the trust. A trustee controls the assets. There are two types of beneficiaries, and they can be the same person. Income and principal.
Income beneficiary will receive anything that falls into the trust's income statement. This includes interest, dividends, municipal bond, rental income, and cash dividends. They do not receive capital gains.
Income beneficiary will receive anything that falls into the trust's income statement. This includes interest, dividends, municipal bond, rental income, and cash dividends. They do not receive capital gains.
Principal beneficiaries will receive anything that falls on the trust's balance sheet, like property. This includes principal on assets, and stock dividends. They receive capital gains.
Principal beneficiaries will receive anything that falls on the trust's balance sheet, like property. This includes principal on assets, and stock dividends. They receive capital gains.
What are the 5 conditions to be a valid express trust? B.R.A.T.S.
Beneficiary, reasonable intent, assets has corpus, must name the trustee, and the trust has a specified life. Do not need to name successor trustee. Charitable trusts can be established forever.
What is an inter vivo trust?
A trust created by two living people
What is a testamentary trust?
A trust created by the execution of a will
What is a spendthrift trust?
A trust that does not allow the pledging of assets to pay off beneficiary's debt.
What is a resulting trust?
A trust created from failure to create a valid express trust.
What is a cy pres trust?
A trust created from failure to create a valid charitable trust. Created to have similar intention as a charitable trust.
Trusts are irrevocable, unless what conditions?
Reserve rights, end of term, occurrence of an event, purpose accomplished, or consent by everyone.
What is the per capita allocation?
Each beneficiary receives equal amounts. If 3 beneficiaries, one third each. If one of the beneficiary dies and has 2 kids, there are not 4 beneficiaries. One fourth each.
What is a per stirpes allocation?
Equal allocation to the first generation. Second generation receives their parent's allocation. If 3 beneficiary, and one dies and has two kids, the two kids will receive the one third allocation, so each kid will receive one sixth of the trust.
What is the purpose of an estate?
Created at time of death to temporarily hold the property of the deceased until it can be distributed.
Intestate
When someone dies without a will
Testate
When someone dies with a will
Form 1041
Estate income tax return
Form 706
Estate Tax
Summarize Estate Income Tax Returns
Calendar year or 3.5 months after death. Quarterly estimates are not required in the first 2 years. Required to file if $600 or more gross income, or nonresident alien beneficiary. $600 exemption.
Summarize Trust Tax Return
Calendar year. Quarterly estimates are required. $300 exemption for simple, $100 exemption for complex. Required to file for only taxable income, gross income of $600 or more, or nonresident alien beneficiary.
There are no standard deductions for estates or trusts.
There are no standard deductions for estates or trusts.
What is a grantor trust?
IT is a revocable trust where the creator can withdraw assets anytime.
What is a simple trust?
One that makes annual distributions exactly to distributable net income.
What is a complex trust?
Doesn't meet simple trust requirement, distributes less than distributable net income, or has amounts set aside for charity, or distributions are made from the principal.
What are the exemptions for estates and trusts?
Complex Trust $100. Simple trust $300. Estate $600.
What is the format of a Fiduciary Income Tax Return - Form 1041?
Income, minus deductions, minus exemptions equals taxable income.
The income reported for a trust or an estate is the same as an individual
The income reported for a trust or an estate is the same as an individual
The deductions, or expenses, reported for a trust and an estimate is similar to an individual, with 3 exceptions.
The deductions, or expenses, reported for a trust and an estimate is similar to an individual, with 3 exceptions.
What are the 3 types of additional deductions that an estate or a trust has, that an individual does not?
Can deduct trustee management fees up to the percentage of taxable income to total income. Can deduct 100% of charity contribution. Can deduct the income distributed to individuals, also known as your distributable net income.
If you distribute income, you deduct it on your estate and that income is then taxed at the beneficiary level. Must attach K1 to show proof it was distributed.
If you distribute income, you deduct it on your estate and that income is then taxed at the beneficiary level. Must attach K1 to show proof it was distributed.
What is D.N.I.?
Distributable net income, it is the max amount that can be taxed to the beneficiary as income. If distribution is more than DNI, it is distribution of principal and nontaxable because it was already taxed 9 months after death date.
How do you calculate D.N.I.?
Start with gross income, similar to individual, estate and trust, and then add municipal bond. Do not add capital gains, because that is for remainder man. Deduct expenses similar to individual, deduct trustee management fee and charity. No income distribution deduction or exemption.
Why do you not deduct income distribution deduction when calculating D.N.I?
Because that's what you are calculating by calculating D.N.I.
Distributions in excess of the D.N.I. is not taxable because it was already taxed 9 months after the date of death.
Distributions in excess of the D.N.I. is not taxable because it was already taxed 9 months after the date of death.
There are no standard deductions for estates or trusts. Do not get tricked on the questions.
There are no standard deductions for estates or trusts. Do not get tricked on the questions.
What is the format of the gift tax - Form 709?
Gross gifts, minus exclusions of supporting minors, minus gifts to spouses, minus gifts of education and medical paid directly to institution, minus annual gift exclusion.
What is considered as a gross gift?
Cash, property, present value of gifts put inside irrevocable trust, interest on loans, bargain sales.
What is not considered a gift?
Life insurance, charity, political contributions, joint account, revocable trusts.
What are the exclusions to a gift tax?
Can exclude, or subtract, support to minors, gifts to spouses, education and medical paid directly to institution, and annual gift limit.
What can you include as an exclusion for the annual gift limit?
Gifts that you can start enjoying now. If it is a future lump sum, you cannot exclude that.
What is a present interest gift?
A gift you can enjoy now. This is included as part of the gross gift and excluded as part of the annual gift limit.
What is a future interest gift?
A gift you can enjoy in the future. Included as a gross gift, but not included as an exclusion.
What is a no interest, or uncompleted, gift?
A gift that is not included in the Form 709 because it's not a gift.
When is a gift tax return due?
April 15th
What is automatically excluded from the definition of taxable gifts?
Transfer to spouses, transfer to charitable organizations, political contributions, payment of medical or tuition directly to institution.
You need to figure out your taxable gift because it gets included as part of your estate tax.
You need to figure out your taxable gift because it gets included as part of your estate tax.
Taxable gift equals gross gift minus exclusions.
Taxable gift equals gross gift minus exclusions.
What is the format for the Estate Tax Form
Sum of current and prior taxable gift and taxable estate. Multiply by tax rate. Minus lifetime exclusion, other credits ,and prepayments.
What is the taxable estate?
All assets, included income in respect of a decedent, life insurance proceeds, revocable trust, half of property with spouse. Minus charity, marital deduction, liability and expenses.
What are prepayments?
Payments made on prior gifts that was over lifetime exclusion.
Value asses on death date, unless you chose AVD. If you chose AVD and distribute asset between death date and AVD, you use the date of distribution.
Value asses on death date, unless you chose AVD. If you chose AVD and distribute asset between death date and AVD, you use the date of distribution.
If you chose AVD and distribute asset after AVD, you value your estate on the AVD.
If you chose AVD and distribute asset after AVD, you value your estate on the AVD.
Income in respect to decedent gets reported on both the estate income tax return and estate tax return.
Income in respect to decedent gets reported on both the estate income tax return and estate tax return.
Generation Skipping Tax
If you exceed lifetime exclusion, you will be taxed twice if you give to grandchildren and skip your children. If your children dies, you will not be taxed twice.
There is a 3.8% surtax on unearned income on trust and estates.
There is a 3.8% surtax on unearned income on trust and estates.
Present and future interest gifts are included as part of the gift tax. They are not excludable.
Present and future interest gifts are included as part of the gift tax. They are not excludable.
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