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CH 9: Income Taxation of Trusts, Estates, and Beneficiaries
Terms in this set (10)
A trust that can accumulate income, distribute corpus, and make gifts to charities. A complex trust qualifies as a separate tax entity that deducts income distributed and pays tax on income retained.
A theory pertaining to trust taxation that provides that what enters the trust or estate as ordinary income remains ordinary income when received by beneficiaries or heirs.
Distributable Net Income (DNI)
A concept pertaining to the income taxation of trusts that provides that to the extent that a trust has income and distributes assets to beneficiaries, those distributions are deemed income first, and a return of principal to the extent the distribution exceeds the income received by the trust.
A trust that is disregarded as a separate taxable entity where the trust income is taxable to the grantor.
Grantor Trust Rules
Provisions found in IRC 671 to 677 that apply when a grantor is the owner of the trust and that qualify a trust as a grantor trust for income tax purposes.
Income First Rule
A rule providing that the trustee's classification of a distribution as "income" or "corpus" is ignored; instead, all amounts distributed are deemed to be income to the extent of DNI.
Income in Respect of a Decedent (IRD)
The right to income earned but not received prior to a person's death. IRD could be income that was already earned, such as wages that had not yet been paid, or future income such as commissions.
Intentionally Defective Grantor Trust (IDGT)
A trust designed intentionally so that income is taxed to the grantor rather than to the trust.
A trust where all trust income must be distributed in the year it is earned. The trustee cannot distribute trust principal or make charitable gifts.
A concept applied to the taxation of income earned by trusts that provides that income tax liability be shared by beneficiaries and the trust when income is distributed from the trust to beneficiaries.
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