Income Taxation of Estates and Trusts

Question 1

Notes:

Estate means yan yung mga Properties, Rights and Obligations

So diba, pag namatay ang tao (decedent), may mga maiiwan syang ari arian such as: house, appartments, receivable, libas etc.

So ang bottom line dito, yang mga naiwan na yan, may Income dyan such as rent income, interest, etc para sa mga heirs.

Hindi yung pag transfer ng Estate. Kasi sa Estate Tax pag uusapan yun! One kind of Transfer Tax yun diba (other is Donor’s tax)

Alisin mo muna sa isip mo yang pag transfer. Kasi, kahit ilang taon ang lumipas, pwedeng hindi pa itransfer (of titile) yang mga yan. So ang nangyayari, nag gegenerate lang sila ng income year by year.

Answer 1

Ok ok ok

Question 2

Okay, gets mo na yung una? Now itimeline natin:

Jan 1

July 1 - Decedent Died

Dec 31

Resposible to pay tax:

Jan 1 - July 1: Yung responsible to pay taxes sa mga “Income” form Estate dito ay syempre yung owner, kasi buhay pa sya.

July 2 - Dec 31: Sino? Depende. Dito na papasok ang problema at mahalagang bagay. (See answer for further info, pero try mo muna sagutin syempre!)

Answer 2

So depende if may iniwan na LAST WILL OR TESTAMENT:

If meron, under JUDICIAL SETTLEMENT. With intervention of court. May administrator.

If wala, Extra Judicial Settlement ang mag aapply, meaning walang pakialam ang court.

Question 3

So depende if may iniwan na LAST WILL OR TESTAMENT:

If meron, under JUDICIAL SETTLEMENT. With intervention of court. May administrator.

Okay, explain mo yung feature and rules nito. Mga bagay na mahalaga.

Answer 3

1. Estates (income from estates) are taxed as if separate entity or individual. So the rules on taxable income, those subject to final tax, capital gains tax, the deductions and the rates are similar, EXCEPT:
   a.

Question 3

So depende if may iniwan na LAST WILL OR TESTAMENT:

If meron, under JUDICIAL SETTLEMENT. With intervention of court. May administrator.

Okay, explain mo yung feature and rules nito. Mga bagay na mahalaga.

Answer 3

1. Estates (income from estates) are taxed as if separate entity or individual. So the rules on taxable income, those subject to final tax, capital gains tax, the deductions and the rates are similar, EXCEPT:
   a.an Estate (as if individual) is required to obtain its own TIN
   b. Distribution of the INCOME made to heirs shall be Deductible in computing taxable income of estate (as if individual)
   c. Such Distribution shall be subject to 15% CWT and should be reported by heir as part of his personal taxable (regular) income
   d. If what was given to heir is NOT PART of the income but part of the estate (such as land or house), hindi deductible yun! Syempre ano ka hilo.
   e. The administrator or executor will be liable to pay the income tax liability of the estate (as if individual)

Sample computation for estate(as if individual):
GI xx
Allowable Deduction (xx)
Distribution (Special Deduction) (xx)
=NTI
Then idaan mo na yan sa ring of fire!

Question 4

So depende if may iniwan na LAST WILL OR TESTAMENT:

If wala, Extra Judicial Settlement ang mag aapply, meaning walang pakialam ang court.

Explain the rules

Answer 4

1. The rules on Co-ownership will apply
2. No deductible sa Estate (as if individual)
3. Distribute sa heirs yung lahat ng NI ng estate equally. Then apply co ownership rule

Question 5

corpus means

Answer 5

principal

Question 6

The property, rights and obligations of a person which are not extinguished by his death and those
which accrued thereto since the opening of succession

Answer 6

Estate

Question 7

A person whose property is transmitted through succession, whether or not he left a will

Answer 7

Decedent

Question 8

A decedent who has a will upon death

Answer 8

Testator

Question 9

The person called to the succession either by the provision of the will or by operation of law

Answer 9

Heir

Question 10

An heir who inherits PERSONAL PROPERTY by will is called

Answer 10

Legatee

Question 11

An heir who inherits REAL property by will is called

Answer 11

Devisee

Question 12

TorF
Where the estate is under judicial administration, the income of the estate shall be taxable to the fiduciary of trustee.

Answer 12

F

Question 13

TorF
Where the estate is not under judicial administration, the income of the estate shall be taxable to the heirs and beneficiaries.

Answer 13

T

Question 14

NOT TorF
Income received by the estate during the period of administration or settlement of the estate, for
tax purposes is known as

Answer 14

Income of the estate

Question 15

TorF
The amount of income of the estate for the taxable year, which is properly paid or credited during such year to any legatee, heir or beneficiary, is a special item of deduction from the gross income of the estate.

Answer 15

T

Question 16

TorF
An allowance paid to a widow or heir out of the corpus of the estate is not deductions from the gross income of the estate.

Answer 16

T

Question 17

TorF
When an estate, under administration, has income-producing properties, the annual
income of the estate becomes part of the taxable gross estate.

Answer 17

F

Question 18

TorF
When an estate, under administration, has income-producing properties and its income during the year is distributed to the heirs, the income so distributed is taxable to the heirs as part of their gross income for the year.

Answer 18

T

Question 19

TorF
The items of gross income of the estate are the same items as the items of gross income of
individual taxpayers.

Answer 19

T

Question 20

TorF
In addition to the allowable deductions under the Tax Code, the estate is allowed to deduct the amount of income of the estate during the taxable year that is paid or credited to the legatee, heir or beneficiary

Answer 20

T

Question 21

TorF
The amount of income of the estate during the year that is paid or credited to the legatee, heir or beneficiary is subject to final withholding tax of 15%

Answer 21

F

Question 22

The following cards are related to Income Tax of Trusts

Question 23

So explain first what is Trust

Answer 23

Trust is the arrangement created by will or an arrangement under which title to property (cash, PPE, etc.) is PASSED TOANOTHER for consideration or investment with the income therefrom and ultimately the corpus to be distributed in accordance with the directions of the creator/trustor/grantor as expressed in the governing instrument.

Question 24

Explain the three parties involved

Answer 24

Trustor/Grantor - The one who establishes the trust

Trustee/Fiduciary - The one in whom confidence is reposed as regards the property for the benefit of another person

Beneficiary - for whose benefit the trust has been established

Question 25

Oright, now explain the two kinds of Trust:
Revocable
Irrevocable

Answer 25

Revocable
- one where at any time the power to revest (return) in the grantor title to part of the corpus of the trust in vested
-here, the trust in NOT CONSIDERED a separate taxable entity and the income from the corpus forms part of the taxable income of the grantor/trustor. Mismo. Kasi buhay pa sya
-Sa side naman ng beneficiary, part lang ng regular income nya pero walang CWT.
-So Trust - 0; Grantor - Yung NTI mismo; Beneficiary - Personal income plus income distributed from trust

Irrevocable
-Where no such right (to revest or return) exists or cannot exercised after an agreed period
-Here, the trust itself is considered a separate taxable entity from grantor and is TAXED SIMILAR TO AN ESTATE UNDER JUDICIAL SETTLEMENT
-Pati sa beneficiary parehas din (may CWT)

Question 26

Explain if two or more trusts: In the event that a Fiduciary/Trustee holds two or more trusts form SAME GRANTOR with SAME BENEFICIARY

Answer 26

the income tax shall be consolidated for such trusts. Accordingly, the gross income and deductions are consolidated as if they are form one property

BUT, AFTER KNOWING THE CONSO TAX PAYABLE. AND THE PROBLEM ASK YOU HOW MUCH TAX DUE FOR EACH TRUST, I PRORATA MO LANG YUNG CONSO TAX PAYABLE SA INCOME NG EACH TRUST

Question 27

TorF
For a trust to be taxable it must be irrevocable, both as to corpus (principal) and income

Answer 27

T

Question 28

For income tax purposes, any person or corporation that holds in trust an estate of another person
or persons

Answer 28

Fiduciary

Question 29

The person for whose benefit the trust has been created

Answer 29

Beneficiary

Question 30

The person in whom the confidence is reposed as regards property for the benefit of another person

Answer 30

Trustee

Question 31

The person who establishes a trust

Answer 31

Trustor

Question 32

An arrangement under which title to property is passed to another for investment with the income
and ultimately the principal to be distributed in accordance with the direction of the creator is

Answer 32

A trust