Estate Trust Taxation Flashcards

2
Q

How is gift taxation different from estate taxation?

A

Property transferred while taxpayer is living

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3
Q

What is the annual exclusion amount for a taxpayer’s gift taxation? What is required to get the exclusion?

A

$13;000 per year per spouse to each individual

In order to get the exclusion; the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits

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4
Q

If a gift is an annuity; what value is used for the gift?

A

If the gift is an annuity; use Present Value to determine the gross gift

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5
Q

What is the basic gift tax calculation?

A

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $13;000 exclusion
= Taxable gift

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6
Q

How is a gift taxed if a recipient gains a future ownership in the gifted property?

A

Recipient must gain ownership and all rights to property to get the annual exclusion. If recipient merely gains a future ownership; then the present value of the gift is 100% taxable to donor and cannot exclude from gift tax calc

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7
Q

What are the deductions for gift tax; besides the annual exclusion?

A

Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)

Political contributions

Charitable gifts

Unlimited gifts to spouse

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8
Q

What is the basis of gifted property for the recipient?

A

If a loss on sale; basis is FMV on the date of the gift

If a gain on sale; basis is same as donor’s basis

No G/L if donor basis is less than sales price; and sales price is less than FMV @ gift date

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9
Q

How/when are gift tax returns filed?

A

Calendar-year basis only

Due April 15

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10
Q

What are the basic characteristics of complex trust?

A
Income distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100

Key Point: Distribution of trust corpus (principal) ok

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11
Q

What are the basic characteristics of a Simple trust?

A

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of trust corpus DISALLOWED

Allowed personal exemption of $300

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12
Q

How are Net Operating Losses handled in a trust?

A

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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13
Q

How are expenses and fees related to tax-exempt income handled in a trust?

A

Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust

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14
Q

When is property transferred in an estate?

A

After the death of the donor

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15
Q

What amount of a decedent’s Estate is exempt from Estate Tax?

A

The First $5;120;000 is exempt with a 35% tax on amount above that

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16
Q

How are a decedent’s medical expenses handled with respect to an estate?

A

Medical expenses paid after death; but incurred within 1 year of death go on decedent’s personal tax return

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17
Q

How is an estate’s NOL handled?

A

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

18
Q

What does a gross estate consist of?

A

Cash and Property FMV at death; or alternate valuation.

19
Q

What is joint tenancy with respect to an estate? How is it calculated?

A

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in estate

20
Q

What is tenancy by entirety?

A

½ of marital assets go to deceased spouse’s estate

21
Q

What is tenancy in common in an estate?

A

A; B; and C own property

If A dies; FMV of A’s share goes to heirs

22
Q

How is estate tax handled with respect to a beneficiary?

A

Property received through inheritance not income to recipient

Property value is FMV at date of death or 6 months later

If property is sold prior to 6 month date and the alternative date is used; FMV at date of sale is used to value property

Basis in property automatically assumes LT holding period

23
Q

What is distributable net income (DNI)?

A

DNI = Taxable Income – Expenses (from income production)

Trust beneficiaries only pay tax if earnings are distributed

Estate beneficiaries pay tax on DNI; regardless if distributed

24
Q

When must a tax exempt organization file a 990-T for Unrelated Business Income?

A

If a tax exempt organization has more than $1;000 of UBI; it must file a Form 990-T

25
Q

What are the requirements for a 501(c)3 organization?

A

Organized and Operated exclusively for exempt purposes

No earnings can benefit an individual or private shareholder

Can’t attempt to influence legislation as a major part of its activities

Can’t campaign politically

26
Q

Formula for DNI

A
Estate gross inc
(Estate deductions)
------------
Adjusted total inc
\+ adjusted tax exempt interest
(Capital gains)
--------------
DNI
27
Q

Simple trust

A
  • distrib out of current income only (no corpus)
  • must distribute all income currently
  • no charitable contribution ded
  • $300 exemption
28
Q

Complex trust

A
  • may accumulate current income
  • may distribute principal (corpus)
  • may deduct charitib contrib
  • $100 exemption
29
Q

General formula for estate transfer tax

A
FMV assets
(Liabilities)
-----------
Net worth
(Transfers)
-----------
Remainder
* tax rate
-----------
Estate tax
(Credits)
------------
Federal estate tax
30
Q

Estate transfer tax credit amount

A

$2,081,800

31
Q

Estate transfer tax deduction amount

A

$5,430,000

32
Q

What are the 2 criteria for gifts?

A

Present and complete

Under $14,000/$28,000 per donee (unless one of the unlimited gifts)