Chapter 5-Estates, Trusts & Gift Taxes

Question 1

what are the two artificial entities that also file tax returns?

Answer 1

• trusts
• estates

it is the FIDUCIARY income tax return (form 1041); it must be filed on annual basis for both entities.

Question 2

what are trust?

Answer 2

typically established for the purpose of benefiting specific individuals or charities without giving them current control of the principal (corpus) of the trust.

Question 3

what is a trustor?

Answer 3

the person putting assets into the trust; also called grantor, settlor, creator

Question 4

what is a trustee?

Answer 4

has control of the assets/trust (could be a bank, insurance company or the attorney)

Question 5

who is a beneficiary

Answer 5

gets the benefits that are of two types:

• income (is on the income statement with the interest, dividends, municipal bond interest, rental income, cash dividends)
• remainderman ( is on the balance sheet with the principal, corpus, capital gain, stock dividends.

Question 6

who should not be the same person in a trust?

Answer 6

the trustee & the beneficiary. these two = the purpose of the trust and should not be the same person that is the sole trustee.

Question 7

what does the remainder receive in a trust or estates disbursement?

Answer 7

remainder receives principal of trust (including capital gains allocable to corpus)

• all assets contributed to the trust (trust property)
• property acquired in exchange for trust corpus
• proceeds from the sale of the corpus
• capital gains
• stock dividends
• mortgage premium payments
• capital improvements
• insurance proceeds

Question 8

how are proceeds from the sale of corpus (all the land, buildings and bonds for ex.) allocated?

Answer 8

entirely to corpus so that gains and losses on asset sales are NOT INCOME

Question 9

for trust and estates, what is considered income?

Answer 9

• cash dividends
• interest income
• rental income, expense
• property taxes
• insurance premiums
• depreciation
• municipal bond interest

Question 10

what is corpus?

Answer 10

for example if a trust is formed with cash then the cash would be considered “corpus” and if the cash is used to purchase stock then the stock becomes “corpus”

Question 11

what is the considered principle in a trust or an estates?

Answer 11

balance sheet items such as the following:

• original property
• bonds (accrued interest)
• capital gains
• mortgage principle payments
• stock dividends/splits

Question 12

how are trust created?

Answer 12

it must satisfy 5 conditions (BRATS)

• Beneficiary (the trust must identify who will receive the benefits deriving from the trust. a trust often identifies an income beneficiary to receive the earnings of the trust, and a remainder beneficiary to receive the principal of the trust when it terminates
• Reasonable intent (there must be a valid purpose, tax savings do not qualify, for the existence of the trust. this is usually the separation of control of the assets from benefits, so a trust with a single individual serving as both trustee and sole beneficiary will usually fail. a trust will also fail when its purpose is impossible to fulfill.)
• Assets (the trust must contain some corpus or property. a trust without corpus has no earnings for the income beneficiaries or principal for the remainder beneficiaries.
• Trustee (a trustee must be in place to exercise control over the assets in the trust. this person does not need to be named in any legal document, however they can be selected by the court or personal representative of the estate in the case of a testamentary trust. a successor trustee is NOT NEEDED and can simply be selected in the event the trustee can no longer serve.)
• Specified life (a trust must have an identifiable termination point, expressed in years or in the length of a life in being at the time the trust is created
• *** private trust = cannot live forever=lives until purpose is satisfied (ex. established for college, after graduation the trust ends)
• ***charitable trust = lives forever (perpetuity)

Question 13

what is a inter vivos trust?

Answer 13

trust created between living people

Question 14

what is a testamentary trust?

Answer 14

created through the execution of a will

Question 15

what is a spendthrift trust?

Answer 15

a trust that prohibits assets from being pledged to pay the debts of a beneficiary. this arrangement is designed to prevent an irresponsible beneficiary from borrowing money from others and promising to use trust assets to repay the debt thereby defeating the purpose of the trust.

Question 16

what is a resulting trust?

Answer 16

a trust that is created by the courts due to the failure of an express trust and is intended to achieve a purpose that the creator the express trust might have chosen had they known of the failure. ex. a testamentary trust is established to put the decedents daughter through college, and the daughter dies before completing college, the assets might be placed in a resulting trust that is to benefit the infant son of the daughter.

Question 17

what is a cy pres trust?

Answer 17

a trust that is established due tot he failure of a charitable trust, and that is designed to achieve a similar goal. ex if a trust is established to find a cure for a particular disease, and a cure is found, the remaining assets might be placed in a trust to find a cure for a similar disease.

Question 18

what is a totten or tentative trust?

Answer 18

a trust created when the settlor opens a bank account in his own name as “trustee” for another. the trust may be revoked by the settlor by withdrawing the funds from the account. once the settlor dies, the trust becomes irrevocable. if the beneficiary dies before he settlor the trust terminates.

Question 19

what is a contructive trusts?

Answer 19

a court will impose a constructive trust when there has been abuse of a confidential relation or where actual fraud or duress is considered an equitable ground for creating the trust. ex. if an agent acquired title to property, he is obligated to transfer it back to the principal because the acquisition was by breach of a fiduciary duty

Question 20

what is a real investment estate trust (REIT)

Answer 20

a trust created by a transfer of the legal title to real estate to a trustee. the trustee manages the trust property for the benefit of specified beneficiaries. the trust doesn’t pay corporate taxes, the beneficiaries do. the major portion of the trusts income must be derived from real estate (rent, interest on mortgages, and gains on sale of real property). the certificates of ownership must be freely transferable. must have a minimum of 100 certificate holders during each year and no fewer than 6 may own 50% or all outstanding certificates.

Question 21

when can a trust be revoked?

Answer 21

• reserve rights
• end of term
• occurrence of an event (death)
• purpose accomplished
• consent of trustor/grantor/settlor/creator & all beneficiaries, remainderman & courts

Question 22

what happens when a trust allocates income/ and or remainder to offspring?

Answer 22

the creator must decide if the allocation will be per capita or per stirpes

Question 23

what is a per capita allocation in a trust?

Answer 23

allocation is equal to each person (each beneficiary). if there are three children, each is allocated 1/3. if one child dies during the term of the trust, and the decedent had two children (grandchildren of the trustor), the allocation is now 1/4 to each of the surviving children and each of the offspring of the deceased child.

Question 24

what is a per stirpes allocation in a trust?

Answer 24

allocation is equal at the level of the first generation (each group). if there are three children, each is allocated 1/3. if one child dies with two offspring, the allocation to each surviving child remains 1/3, and each of the offspring of the deceased child is allocated a 1/6

Question 25

what happens when a person dies without a will (intestate)?

Answer 25

the assets will be distributed in the following order:

• spouse
• decedent (children/grandchildren)
• ascendant (parent/grandparents)
• collaterals (brothers/sisters)

Question 26

what are estates?

Answer 26

they are created at the time of a persons death to temporarily hold the property of the decedent until it can be distributed to the heirs (an estate kicks in when a person kicks out). since the deceased person’s investments will generate interest, dividends and rental income, the estate must pay income taxes on the earnings.

Question 27

what is an executor in an estate?

Answer 27

the person responsible for filing the income tax return.
the personal representative in charge of the estate. (if named by the decedents will - testate or administrator (if named by the courts). the responsibilities include:
-paying the debts of the decedent out of estate assets
-filing all necessary tax returns
-distributing remaining assets to the appropriate beneficiaries.

Question 28

what is an intestate?

Answer 28

when someone dies WITHOUT a written will.

Question 29

what is a testate?

Answer 29

when someone dies WITH a will.

Question 30

what is the estate of the decedent?

Answer 30

at the time a person dies, their property generally is transferred to a successor legal entity known as the estate of the decedent. this does not apply to property that is held in joint tenancy or some other form of ownership that provides right of survivor-ship. such property automatically goes to the survivors and bypasses the estate.

Question 31

what is the process of settling an estate?

Answer 31

probate

Question 32

what do personal representative have to the estate?

Answer 32

fiduciary duties to the estate, its creditors, and beneficiaries. this means the representative must act in a loyal manner in the best interests of these parties. they may not engage in self dealing, which includes personally borrowing money from the estate or entering joint business ventures with it. . they are expected to carry out the wishes of the decedent as expressed in the will to the extent possible, subject to the legitimate claims of creditors (including government tax authorities) if the decedent died intestate (without will), the administrator will distribute assets based on applicable state law in the jurisdiction the decedent resided at the time of death.

Question 33

what kind of responsibility does a trustee have?

Answer 33

a fiduciary responsibility as well to the trust, just like the personal representative has to the estate. additionally, the trustee is responsible for ensuring that the income and principal of the trust are properly assigned to the income and remainder beneficiaries respectively.

Question 34

what are the key qualities of a trustee?

Answer 34

• act loyally
• due care
• distribute income and principal according to the trust terms
• keep accurate records

Question 35

what is a form 1041 tax return?

Answer 35

the fiduciary income tax return; filed annually by estates and trusts to report the income earned by the entity.

• required when estate has gross income of $600 or more and trust $100 or $300 or more
• similar to form 1040 but no standard deduction is given and different exemption exist. since trust are normally planned in advance so federal law requires that they adopt a calendar year for the reporting of taxable income and due 4/15 but trust must pay quarterly estimated taxes.

Question 36

since estates result from the death of a person & are not considered controllable, what does the federal law allow?

Answer 36

permits the personal representative of the estate to adopt any tax year, with the return due by the 15th day of the 4th month following the end of the tax year (3 1/2 months after the close of the reporting year)

Question 37

what are the requirements if a fiscal or calendar year is chosen for an estate?

Answer 37

it is acceptable for an estate usually starting on the deceased’s date of death. the tax return is due 3 1/2 months after the close of the reporting year. estimated quarterly tax payments are not required during the first two years but are required thereafter.

Question 38

what are the types of trust?

Answer 38

grantor trust
simple trust
complex trust

Question 39

what is a grantor (revocable) trust?

Answer 39

this is a trust whose creator (grantor) reserves the right to withdraw assets at any time. the tax code ignores this trust. the income is taxed on the GRANTOR’S form 1040 as if the trust did not exist

Question 40

what is a simple trust

Answer 40

one that makes annual distributions exactly equal to DNI (distributable net income) to taxpaying beneficiaries each year.

• form 1041 must be prepared every year
• taxable income normally reduced to zero by distributions; net capital gains can result in retained income; personal exemption is $300.00
• distributions may exceed distributable net income;if only amount up to distributable net income is included in beneficiary’s gross income; multiple beneficiaries share in distributable net income proportionately when distributions exceed distributable net income.

Question 41

what is complex trust?

Answer 41

any trust that fails to meet the criteria for a simple trust and satisfies one of the three conditions during the tax year

• less than DNI is distributed and some of current income is retained within the trust or
• amounts are permanently set aside for charitable gifts, or
• a distribution was made from amounts allocated to trust principal.
• personal exemption is only $100
• often pays taxes on undistributed income

Question 42

can trusts and estates claim standard deductions or dependent exemptions?

Answer 42

no they cannot

Question 43

who can claim personal exemptions?

Answer 43

• complex trust up to $100
• simple trust up to $300
• estates up to $600

Question 44

what does the distributable net income equal?

Answer 44

= max amount that can be taxed to beneficiaries as income. rest considered a distribution of principal (payoutable profits) and is tax free; the amount in excess of dni is tax free.

identifies the income that is available to distribute to the income beneficiaries of the trust each year. it is based on the income and expenses reported on the income tax return of the trust, with two adjustments
1-tax exempt income is included in DNI since it is available to distribute, even though it is not subject to taxation (municipal bond interest)
2-net capital gains are not included in DNI since, under trust law, they are treated as adjustments to the corpus

Question 45

for trust and estates what is considered gross income?

Answer 45

• interest
• dividends
• rental income
• capital gains

Question 46

for distributable net income (DNI) what is considered gross income?

Answer 46

• interest
• dividends
• rental income
• capital gains
• municipal bond interest

NOTE: ANYTHING DISTRIBUTABLE TO CORPUS IS NOT INCLUDED IN DISTRIBUTABLE NET INCOME

Question 47

what are fiduciary fees or trustee management fees that can be deducted?

Answer 47

accountants, attorneys, income tax preparation (only deduct based on % of taxable income)

Question 48

what are charity contributions that can be deducted?

Answer 48

can give 100% away (trust); individuals only up to 50% of AGI

Question 49

what are income distribution deductions that can be deducted?

Answer 49

taxed once and only once! no double taxation. either stays or gets distributed to K-1, Schedule E, 1040

Question 50

are their exemptions for distributable net income?

Answer 50

nope

Question 51

what are exemptions available for trust and estates?

Answer 51

simple = $300
complex = $100
estates = $600

Question 52

how is distributable net income different from taxable income?

Answer 52

• includes tax exempt income (municipal bond interest)
• excludes net capital gains
• actual distributions of DNI reduce taxable income (100% deductible) such distributions reported on recipients returns

Question 53

what are the difference in a fiduciary income tax return and an individual income tax return?

Answer 53

• there is no limit on charitable deductions but they must be authorized in the trust instrument or will of the decedent, can give an unlimited amount to charity
• income paid to an estate that was earned by the decedent prior to death (such as the final paycheck of the taxpayer from their employer or installment payments paid to a decedents estate) must be included in fiduciary income tax return (form 1041) and also reported as a receivable on the estates tax return of the decedent (form 706), which is also known as income in respect of a decedent (IRD)
• fees paid to the trustee (fiduciary fees) and other costs of administering the trust are generally deductible. fees paid to administer an estate can only be deducted on the fiduciary income tax return if the executor waives the right to deduct these costs on the estate tax return.
• a deduction is claimed for all distributions of DNI to beneficiaries of the trust or estate. the beneficiaries report the income on their personal tax returns. the amounts flow through on a 1041 K-1 then to the schedule E on their individual 1040 tax returns. distributions of corpus are not deductible and not taxable to the beneficiaries.

Question 54

what cost incurred by the trust are deductible only up to the extent they exceed 2% of adjusted income?

Answer 54

• costs related to the ownership of property such as insurance premiums and maintenance cost
• tax preparation fees other than for estate tax returns
• generation skipping transfer tax returns
• fiduciary income tax returns
• a decedents final individual income tax return
• investment advisory fee
• appraisal fees

in applying this threshold, adjusted income does not include deductions for those expenses that are subject to the 2% threshold

Question 55

what does the patient protection and affordable care act (PPACA) result in?

Answer 55

a surtax on unearned income that may have to paid by estates and trusts. the surtax which is added to other taxes the estate or trust liable for is computed at 3.8% of the lesser of 2 amounts
1-undistributed taxable income for the taxable year
2-the excess if any of AGI for the taxable year over the dollar amount at which the highest tax bracket begins for that taxable year.

Question 56

what is the unified transfer tax?

Answer 56

taxes that may be owed by those who transfer large amounts of their wealth to others during their lifetime and upon their death. Transfers made during their lifetime are reported on GIFT TAX RETURNS (FORM 709), and the estate tax return (FORM 706) combines all reported gifts and the value of the estate at death to determine if any additional taxes are due.

**under provisions of the unified transfer tax, lifetime taxable gifts and the taxable estate at the time of death are taxed on a cumulative basis using a single schedule of rates, with the payment of the tax beginning as soon as the cumulative reported amounts have exceeded the amount that can be eliminated by the lifetime unified transfers tax credit.

Question 57

what goes on gross gifts form 709?

Answer 57

C-L-I-P-S go on form 709

• cash
• loan $
• irrevocable trust (present value)
• property
• sell car

These items do not go on form 709 gross gifts

• life insurance
• charity
• political contributions
• joint account
• revocable trust

what are exclusions for gross gifts on form 709?

-support for minors
-marital deduction
-education & medical bills (paid directly to school/hospital
-14,000 gift exclusion
=taxable gifts
+T.G’s over the years
+Taxable Estate
=total taxable transfer
x tax rate
=tentative tax liability
-unified credit
-other credits
-prepayments
=tax due

Question 58

What is included on form 706 for the gross estate

Answer 58

\+all assets (+ird money coming in later)
\+life insurance proceeds
\+revocable trust
\+ 1/2 of property with spouse
=gross estate
-charity donations
-marital deduction
-liabilities/expenses/medical, mortgages, administrative expenses, funeral
=taxable estate

Question 59

what 3 types of transfers that can happen in a persons lifetime?

Answer 59

1. gift of a present interest - an immediate transfer of wealth that can be accessed by the recipient immediately
2. gift of a future interest - an irrevocable transfer of the right to access wealth at a future time
3. uncompleted gift (no interest) - a revocable transfer of the right to access wealth at a future time.

Question 60

what are the requirements for a gift of a present interest?

Answer 60

normally it must be reported in years in which the taxpayer transfers more than $14,000 in wealth to a single individual, the amount is 28,000 for married filing jointly. gifts of present interests exceeding 14,000 except:

• gifts to spouses. gift given in contemplation of marriage, like engagement rings are not exempt
• support to minors
• payments directly to schools for tuition for another
• payments directly to health care providers for another.
• 14,000 exclusions (start now employment NOW)
• right to immediately use and enjoy the property. a present interest exist if:
• ***annuity starting now
• ***outright ownership of the property
• ***the guaranteed right to immediately receive the periodic dividends, rents or other income stream the property generates
• ****a delayed right to property does not qualify
• **depositing cash into a joint bank account with an intended beneficiary (noncontributing tenant) only becomes a gift when the beneficiary withdraws funds from that account for his own benefit.

Question 61

what are the requirements for a gift of a future interest?

Answer 61

must be reported regardless of size at the present value of the future interest. DOES NOT QUALIFY for the 14,000 exclusion.
***any gift in which amount is not immediately available to gift beneficiary (cannot enjoy now, not available for exclusion)

Question 62

what are the requirements for a gift of an uncompleted gift (no interest)?

Answer 62

its not reported, and the wealth is still considered a part of the taxpayers estate as long as they retain their right to revoke the transfer. when donor retains right to revoke gift (revocable trust)

Question 63

what can gifts involve?

Answer 63

• transfers of cash or property
• sales of property at a bargain price to another family member
• loans to family members on which a fair rate of interest is not charged
• trusts established for others in which income and/or corpus will eventually go to someone other than the taxpayer.

Question 64

what happens if the interest in a trust is split?

Answer 64

if the income of the trust each year goes immediately to one beneficiary and the corpus will go to another at the time the trust terminates, then the grantor of the trust is making a gift of a present interest to the income beneficiary each year and a gift of a future interest to a different remainder beneficiary (assuming the trust is irrevocable)

Question 65

what items are automatically excluded from the definition of gifts:

Answer 65

• transfers to spouses (the couple must be married at the time of transfer)
• transfers to qualified charitable organizations
• political contributions to organizations
• payment of medical expenses or tuition of another (payment must be made directly to the health care or education provider)

Question 66

when are gift tax returns due?

Answer 66

April 15 of the year FOLLOWING the calendar year in which the reportable gifts occur. each individual is permitted to make taxable gifts up to their lifetime limit before owing any tax. in 2015 the amount is 5.43 million @ 40%

Question 67

who can use the gift tax exclusion?

Answer 67

its applied to each individual donor, so a husband and wife may each use the annual and lifetime exclusions mentioned.. Portability between spouses permits the surviving spouse to apply the decedents unused exclusion amount to the surviving spouses own transfers during life (gift) and at death (Estate)

Question 68

when must an estate tax return form 706 be filed?

Answer 68

it must be filed on behalf of anyone who, at the time of death had a gross estate exceeding the lifetime exclusion (for someone dying in 2015 the amount is 5.43 million for single, and 10.86 million for married filing jointly). The due date is exactly 9 months after the date of death.

Question 69

what does the gross estates include?

Answer 69

• cash and property owned by the decedent at the time of death
• all gifts reported on gift tax returns during the lifetime of the decedent made after 1976 (gift and estate taxes are unified in this manner)
• receivables, including income in respect of a decedent representing amounts earned by the decedent but not paid until after their death (company bonus)
• trust in which the decedent had an interest or a right to revoke at the time of death
• life insurance proceeds on policies that the decedent controlled for purposes of naming the beneficiary (“incident of ownership), even if the proceeds are not being paid to the decedents estate.
• one half of all property jointly held with a spouse
• all of property jointly held with anyone other than a spouse, reduced only by the percentage of the cost of the property that the other can prove they paid.

Question 70

what are the estate tax rules regarding jointly held property with a non-spouse?

Answer 70

the purpose of including all of it unless the other party can prove they contributed to the cost is to prevent taxpayers from bypassing estate taxes through the use of joint accounts.

Question 71

what does the right of survivor-ship mean?

Answer 71

it only means the survivor gets immediate control of the account without the legal process of probate; it doesn’t eliminate estate taxes

Question 72

how are estate assets valued?

Answer 72

it is normally based on fair market values at the TIME OF DEATH.

Question 73

what is the alternative valuation date (AVD)?

Answer 73

when the executor elects the alternative valuation date, assets are valued at the time of distribution or sale from the estate. Items not distributed within six months of death have an alternative valuation of the fair market value exactly 6 months after the date of death. the alternative valuation may be elected for an estate only if it will reduce both the value of the gross estate and the amount of estate tax liability.
-the exception to the fair market value at the time of death applies to appreciated property received by the decedent within one year of death. in these cases the property retains the original donors basis.

Question 74

what is the portability for spouses in regards to estate taxes?

Answer 74

allows spouses to combine their estate tax exemptions, so they can give away or leave more than $10,860,000.00 without owing taxes. so if the first spouse to die doesn’t use up their individual gift/estate tax exemption, the surviving spouse gets to use what is left. it does require the living spouse to file an estate tax return even though no tax is due at the time. when the second spouse dies their heirs can use some of the first spouses unused exemption plus the current spouses exemption, so no estate tax may be due even though the estate is over the exemption amount.

Question 75

an estate is liable for taxes when?

Answer 75

only if the taxable estate exceeds the lifetime exclusion. the taxable estate is the gross estate reduced by allowable deductions. The most important deductions are as follows:

• state death tax deduction (included only taxes actually paid and claimed as a deduction. this replaces the state death tax credit)
• marital deduction (anything transferred to the decedents surviving spouse)
• charitable deduction (all contributions authorized by the decedent in their will; no deduction is available if the decedent died intestate, that is, without a will)
• funeral expenses
• casualty and theft loss (during the estate administration)
• administrative expenses (cost incurred in the settlement of the estate, unless the executor waives the right to deduct these amounts in order to claim them on the fiduciary income tax return of the estate (form 1041))
• liabilities of the estate (all debts existing at the time of death with the exception of the estate tax liability itself. medical expenses owed at the time of death may be included unless the executor waives the right to deduct these amounts in order to claim them on the final individual income tax return of the decedent (form 1040)

Question 76

how is the tentative tax computed?

Answer 76

• once the taxable estate is determined, the tentative tax is computed based on the appropriate tax tables. this tentative tax is then reduced by various credits:
• **foreign tax credit (taxes paid on property in other countries to the extent the property has been taxed twice)
• **unified credit (a credit that is large enough to eliminate the tax on an estate equal to the lifetime exclusion
• **state death tax credit (payments for state estate, inheritance, legacy, or succession taxes)

once these credits are claimed (these credits offset against the gross estate tax to determine the net estate tax of a u.s. citizen), the resulting net tax is reduced by gift taxes that were paid by the decedent over the course of their lifetime.

Question 77

based on the unified nature of gift and estate taxes how are they considered?

Answer 77

estate taxes and gift taxes are not considered credits against the estate tax. instead, they are reported as prior payments on the overall unified transfer tax, reducing the balance due on the estate tax return.

Question 78

what is generation skipping tax?

Answer 78

a tax imposed when the decedents estate is transferring substantial property to beneficiaries at least two generations below the decedent. the generation skipping tax applies when amounts exceeding the lifetime exclusion are applied. this exclusion is unrelated to the lifetime exclusion on gift and estate taxes, and any tax resulting from transfers exceeding these amounts is owed in addition to those taxes. the amount for 2015 is 5.43 million.

the intent of the generation skipping tax is to prevent taxpayers from avoiding the estate taxes on a generation by giving for ex. to grandchildren instead of children. the amount of the generation skipping tax is usually reasonably close to the additional estate taxes that would have been paid to the government if the taxpayer had transferred the property to the grandchildren. the generation skipping tax does not apply to transfers to a grand child if the taxpayers child who is the parent of the grandchild is already deceased, since the grandchild is actually the first generation in that line below the taxpayer

Question 79

what is the unearned income medicare contribution tax?

Answer 79

a tax that is imposed on the unearned income of individuals, estates, and trusts. this is part of the patient protection and affordable care act. for trusts and estates, the surtax is 3.8% of the lessor of:

• **1. an estate or trusts undistributed net investment income (UNII) or
• **the excess of an estate or trusts adjusted gross income reduced by a fixed threshold. Look up the 2015 threshold

Question 80

whats not considered a gift and are excludible at any amount from gift taxes?

Answer 80

transfers to spouses, transfers to charitable organizations, political contributions, and payments of medical expenses or tuition of another (the payment must be made directly to the health care or education provider). the payment of tuition expenses directly to the university qualifies for exclusion from taxable gifts.

Question 81

what is included in accounting income

Answer 81

for accounting purposes all taxable and non taxable income should be included, but income attributed to corpus would not be considered accounting income. therefore accounting income would include the following;

interest from corporate bonds,
tax exempt interest from state bonds

Note: ANY CAPITAL GAIN AND TRUSTEE FEE ARE NOT INCLUDED BECAUSE THEY ARE ALLOCATED TO CORPUS.

Question 82

a trust subject to INCOME TAXATION is required to adopt which, a calendar year or fiscal year?

Answer 82

required to adopt a calendar year

Question 83

are administrative fee’s deductible on both the fiduciary income tax return (form 1041) and the estate tax return (form 706)?

Answer 83

no, any expense claimed on the fiduciary income tax return requires that the available deduction on the federal estate tax return be waived.

Question 84

are gifts and inheritances included in the taxable income of the recipients?

Answer 84

no it is NOT INCLUDED IN THE TAXABLE INCOME OF THE RECIPIENT

Question 85

what are some allowable trust expenses?

Answer 85

• depreciation
• depletion
• amortization

Question 86

what are valid deductions from a decedents gross estate?

Answer 86

• funeral and administrative expenses
• payment for debts and mortgages
• casualty losses
• charitable bequests
• state death taxes

NO DEDUCTION FOR FOREIGN DEATH TAXES

Question 87

what is the marital deduction write-off?

Answer 87

it is a deduction that may be applied to an estate to reduce the amount that will be subject to estate tax. the marital deduction is equal to the TOTAL of the value of estate assets that is bequeathed to a surviving spouse.

Question 88

in order to use the life time exclusion amount as a surviving spouse, what is required?

Answer 88

it must be filed on form 706 which is the estate tax return.

Question 89

what is the gift tax exclusion per year?

Answer 89

it is currently 14,000 per each individual you give to. so you exclusion amount can be greater than 14,000 if you give to multiple people and remember the exclusion only applies to individuals with immediate use of the money/gift.