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Taxation > Unit 8 > Flashcards

Unit 8 Flashcards

1
Q

Form 1041

A
  • Estates and trusts must file Form 1041.
  • This form is for fiduciary tax returns.
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2
Q

What would cause an estate to file?

A
  • Estates with gross income of $600 or more must file.
  • Also, if there’s a nonresident alien beneficiary, the estate must file.
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3
Q

What must happen for a trust to file?

A
  • Trusts must file if they have any taxable income.
  • Additionally, trusts with gross income of $600 or more must file.
  • If there’s a nonresident alien beneficiary, the trust must file.
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4
Q

Do grantor trusts need to file?

A

Not usually

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5
Q

Calendar year tax deadline?

A

April 15th

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6
Q

Fiscal year deadline

A

15th day of the 4th month following the close of the tax year

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7
Q

When does the first tax year start for an estate?

A

The date of death - can be any period of 12 months

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8
Q

When is the tax year chosen for an estate?

A

When the first return is filed

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9
Q

Trusts use what tax year?

A

Calendar year

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10
Q

Capital gains, dividend and interest income that is required to be distributed to the beneficiaries are taxed how

A

taxed as capital gains and income to the beneficiaries

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11
Q

Can a beneficiary be taxed on something that was not actually distributed to them?

A

Yes, beneficiaries are taxed on all distributions made to them.
They’re also taxed on what was required to be distributed, even if not actually distributed.

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12
Q

Income on a grantor trust is taxed to whom?

A

the grantor

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13
Q

Are grantor trusts subject to taxation?

A

Not usually

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14
Q

Grantor Trust Rules:

A
  • Grantor can revoke or alter the trust.
  • Grantor keeps beneficial enjoyment.
  • Grantor maintains administrative powers or control of beneficial enjoyment.
  • Income can be used to pay life insurance premiums for grantor or spouse, except if it’s irrevocably payable to charity.
  • Income may be distributed to support the grantor’s children.
  • Trust corpus returns to the grantor, even if reversionary interest is just 5% of trust assets.
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15
Q

Simple trusts

A
  • Must distribute all current accounting income to beneficiaries in the year earned.
  • Cannot distribute principal or have charitable beneficiaries.
  • Have a personal exemption of $300.
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16
Q

Complex trust

A
  • Not required to make distributions.
  • Can accumulate income, have charitable beneficiaries, or distribute principal during the tax year.
  • Trust classification can change from simple to complex and vice versa based on distributions.
  • Trusts with an option to distribute or accumulate income are always complex.
  • Considered complex in their final year as principal must be distributed upon termination.
  • Have a personal exemption of $100.
17
Q

Personal exemption for complex trust?

A

$100

18
Q

Personal exemption for simple trust?

A

$300

19
Q

When must a simple trust distribute all current accounting income?

A

Must distribute all current accounting income to beneficiaries in the year earned

20
Q

Can a simple trust distribute principal?

A

No

21
Q

What if I want my simple trust to have a charitable beneficiary?

A

You can’t

22
Q

When/how would trust classification change?

A

Trust classification can change from simple to complex and vice versa based on distributions.

23
Q

Can a simple trust turn into a complex trust?

A

Yes and vice versa

24
Q

Complex trusts can do what vs simple trusts

A

Can accumulate income, have charitable beneficiaries, or distribute principal during the tax year.

25
Q

Revocable trust

A
  • Grantor has the right to terminate the trust.
  • Transferring assets into a revocable trust isn’t considered a completed gift for gift tax purposes.
  • Treated as a grantor-type trust for income tax purposes.
  • Assets in the trust are subject to estate tax upon the grantor’s death.
26
Q

Trusts that can distribute or accumulate income are always what

A

complex

27
Q

A revocable trust is treated as what type of trust for tax purposes?

A

Grantor

28
Q

Who has the right to terminate a revocable trust?

A

Grantor

29
Q

Irrevocable Trusts

A
  • Cannot be revoked once created.
  • Transferring assets into these trusts is typically considered a completed gift subject to gift taxes.
30
Q

A completed gift is made when transferring to what type of trust?

A

Irrevocable

31
Q

Trust accounting income

A

the items of income and expense that are used to determine the amount the income beneficiaries are entitled to receive from the trust each year

32
Q

Trust document says what re: accounting income

A

specify what the accounting income is, and how capital gains and expenses are allocated to income or principal

33
Q

Finding trust taxable income

A
  • Calculated by subtracting deductions for distributions, charitable contributions, and investment advisor fees from total income.
  • Applicable personal exemption is then deducted to determine taxable income.
34
Q

Distributable Net Income
DNI

A
  • Allocates taxable income between beneficiaries and the trust.
  • It’s the maximum amount taxable to beneficiaries.
  • Excess distributions over DNI are non-taxable return of principal.
  • Beneficiaries are taxed on the lesser of the DNI allocation or the amount required to be distributed per the trust document.
35
Q

Excess distributions over DNI are what

A

Taxable return of principal

36
Q

Trust beneficiaries are taxed on what re: DNI

A

Beneficiaries are taxed on the lesser of the DNI allocation or the amount required to be distributed per the trust document.

37
Q

Estate Income Tax:

A
  • Estates file and pay taxes while assets are collected and debts settled.
  • Income tax for an estate resembles that of a complex trust.
  • Personal exemption is raised to $600.
38
Q

Estate personal exemption

A

$600

39
Q

Income tax for an estate resembles what kind of trust

A

Complex

Taxation (14 decks)

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