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Flashcards in Estates and trusts Deck (24):

types of trusts

An inter vivos trust is created during the grantor’s lifetime. A testamentary trust will begin when the grantor dies and he has provided for a trust in his will. The testamentary trust becomes valid at Cord’s death. Cord’s spouse can serve as both the trustee and personal representative of the trust.


simple trusts

Simple trusts may have tax-exempt income, but the other three conditions listed must be met for the current year for a trust to be considered simple and not complex.Distributes all income currently,Does not distribute from trust corpus,Does not deduct charitable contributions



A testamentary trust is created by an individual's will at or following the date of the grantor's death.



The written trust instrument would be the starting place for creating any trust. The written trust instrument would provide for payment of fees to the trustee and designate any and all beneficiaries.

Transferring the cash to the trustee would complete the creation of the trust.


Complex trust

A complex trust is any trust that does not qualify as a simple trust.



A distribution from estate income that was currently required was made to the estate's sole beneficiary during its calendar year. The maximum amount of the distribution to be included in the beneficiary's gross income is limited to the estate's distributable net income (DNI).

Distributable net income is an amount that sets the limit on the deduction of a domestic estate or trust for distributions to beneficiaries. It also sets the maximum amount of the distribution taxable to the beneficiary.



Generally, a trustee would have the power to sell trust property, pay management expenses, and employ a CPA to prepare trust tax returns. The trustee would not typically accumulate income because the income would then be taxed at a very high tax rate.



The property tax is an annual payment that is typically allocated to the income of a trust. Because the monthly mortgage payment is for the only trust asset, it would be allocated to the principal of the trust.


termination of trust

A trust will terminate based upon the written document. In this case, once the principal reverted back to the creator of the trust, Dart, the trust would terminate.


gross income inclusion

the DNI is allocatiion based on the relative value of the distributions



ncome of an estate or trust that is taxed to that entity uses a separate tax rate for estates and trusts. The tax rate accelerates quickly.


beneficiary tax

Beneficiaries are taxed on their share of the trusts income distributed to them, but not more than their share of DNI of the trust.


personal exemption ( no standard deduction)

There is no standard deduction for a trust or an estate (IRC Section 63(c)(6)(D)). Instead, the personal exemption for an estate is $600, for a simple trust is $300, and for a complex trust is $100,


estate /trust

Income earned by an estate is subject to income tax. Generally, income of the decedent up to the date of death is reported on the final Form 1040. Income earned after death is reported by the estate's fiduciary on Form 1041. An estate may adopt either a calendar year or fiscal year. Trusts, on the other hand, must use a calendar year. (IRC Section 644)


termination of trust

The trust will automatically end on the death of Hardy. A trust terminates when the beneficiary has died. Hardy is the only beneficiary, so the trust expires when he passes.



While the trust will receive the income, it is then paid out to Carlt's mother currently (IRC Sections 671 and 674). Because Carlt retained the power to revoke the income interest and the remainder interest, he still controls the trust and he will be taxed on the trust income.



Reversionary trust income is taxed to the grantor, even though the income is distributed to the beneficiaries.


indirect expenses

Indirect expenses of a trust such as trustee fees are considered to apply to all income. The ratio of taxable income to total income (not including income allocated to corpus) is used to determine the deduction


Question #101465



admin expenses

Ordinary and necessary administration expenses are deductible on either the fiduciary income tax return (Form 1041) or the federal estate tax return (Form 706), but not both.


Gross estate deductions

Those costs associated with adminstering the estate ; funeral expenses,admin,indebtness of prop in gross estate,claims against the estate, medical expenses not on final return


Adj gross estate deductions

Unified tax credit,charitible bequests,marital deduction


proceeds of life insurance payable to the estates executor

included in the decedents gross estate


proceeds paid to the beneficiary

are not includable in the decedents gross estate unless the decedent retained control over the policy