Chapter 4 Section 4: Estate, Trust, and Gift Taxation Flashcards Preview

REGULATION > Chapter 4 Section 4: Estate, Trust, and Gift Taxation > Flashcards

Flashcards in Chapter 4 Section 4: Estate, Trust, and Gift Taxation Deck (32):
1

What taxes are estates subject to?

Income tax
Estate tax

2

What is the unified estate and gift tax?
What is excluded?

The estate and gift tax were combined into one
Gifts of $14,000 or less per year/per donee
There is a credit basically undoing any gifts that total less than $5,430,000

3

Define Distributable Net Income (DNI)

A limitation on the amount the trust or estate can deduct with respect to distributions to beneficiaries

4

What is the formula for DNI?

Estate Gross Income
- Estate Deductions
= Adjusted Total Income
+ Adjusted Tax-Exempt Interest
- Capital Gains (Attributable to Corpus)
= DNI

5

What deductions are allowed for DNI?

Any ordinary and necessary expenses incurred to produce the income
Also charity is unlimited as long as the gift was specified in the will

6

What character does income take on when distributed?

It keeps the same character it had before it was distributed

7

What is the amount of the income distribution deduction?

The lesser of:
Actual distributions to beneficiaries or
DNI less adjusted tax-exempt interest

8

What form does estate (or trust) income tax go on?

1041

9

What is the exemption for an estate?
Do they get a standard deduction?

$600
No

10

What year can an estate elect to have?

Calendar year
Fiscal year - anytime (due 4/15)

11

Does an estate make estimated tax payments?

Not for the first two years

12

What year does a trust have?

Calendar

13

What can a trust deduct in regards to distributions?

Any amount distributed up to the DNI

14

Define Simple Trust

Only makes distributions out of current income, not out of corpus
Must distribute all income currently
Cannot take charitable contribution deduction
Entitled to $300 deduction

15

Define grantor trust

The grantor retains control over the assets
Is a disregarded entity and is reported on the grantor's 1040
Can be a qualified shareholder of an S Corp

16

Define complex trust

All trusts that are not simple.
May accumulate current income
May distribute principal
May deduct charitable contributions
Permitted an exemption of $100

17

What form does the estate tax go on?

706

18

What is the filing deadline for the estate tax?

9 months after death

19

What goes into the gross estate?

FMV of property owned (at date of death, date of distribution, or 6 months after death)
Insurance proceeds
Incomplete gifts
Revocable transfers
All property entitled to be received

20

What is the formula for estate tax due?

Gross estate
- Nondiscretionary deductions
= Adjusted gross estate
- Discretionary deductions
= Taxable estate
+ Adjusted taxable gifts
= Tentative tax base at death
x Uniform tax rate
= Tentative estate tax
- Gift taxes payable
= Gross estate tax
- Applicable credit
= Estate tax due

21

What goes into nondiscretionary deductions (expenses)

Medical expenses (inc tax return or estate return)
Administrative expenses (inc tax return or estate return)
Outstanding debt of decedent
Claims against the estate
Funeral cost
Certain taxes

22

What goes into discretionary deductions (expense)

Unlimited charitable deduction
Unlimited marital deduction

23

What is the deceased spouse's unused exclusion?

If your spouse died first and didn't use the whole $5,430,000, you get the remainder

24

What other credits reduce the gross estate tax?

Foreign death taxes
Prior transfer taxes

25

Who pays the gift tax?

The person giving the tax

26

What form does the gift tax go on?

709

27

What is the exclusion for the gift tax?

$14,000 per year per donee

28

What are the gifts that qualify for the unlimited exclusion from the gift tax?

Payments directly to an educational institution
Payments directly to a health care facility
Charitable gifts
Martial deduction

29

Does a gift have present vs. future interest?
Is it complete or incomplete?

Present
Complete

30

What makes a gift incomplete?

Conditions or revocability

31

What is the formula for tax due on current gifts?

Gross gifts (FMV)
- Exclusion of 14,000 for each donee
- Unlimited marital deduction
- Unlimited charitable deduction
= Taxable gifts
+ Prior year taxable gifts
= Cumulative lifetime gifts
x Tax rate
= Tax on cumulative lifetime gifts
- Gift tax paid on prior gifts
- Applicable credits
= tax due on current gifts

32

Explain the generation-skipping transfer tax

Prevents an individual from escaping a sort of double taxation if they give their stuff to their kid, and then their kid gives it to the grandchildren, by which time it's cut in half twice. If you give it straight to your grandchildren, they tax it twice anyway.

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