A person in a position of special trust who holds property for or receives and controls income of another.
What is another name for an estate or trust?
A fiduciary
What is another name for Principal held by a trust or estate?
Corpus
What type types of taxes is an estate subject to?
Annual income tax
One time transfer estate tax
[HEAVILY TESTED] How is Distributable Net Income (DNI) for an estate or trust calculated?
Gross income including capital gains
Less: deductions
Adjusted total income
Plus: Net tax-exempt interest (interest income – interest expense)
Less: Capital gains that are attributable to corpus
Distributable Net Income (DNI)
Tax exempt interest IS/IS NOT included in an estate or trusts gross income?
It is NOT included in gross income, but the net tax exempt interest income (income - expenses associated with the tax exempt interest) are added to the adjusted gross income to determine the distributable net income.
What is the purpose of determining Distributable Net Income (DNI)
All distributions up to the DNI are taxable to the beneficiary
True / False: Income distributed to the beneficiaries of an estate or trust retains the same character (tax exempt, portfolio, passive) as the income had at the fiduciary level.
True
[HEAVILY TESTED] How is the Income Distribution Deduction determined?
It is the lesser of…
Actual distribution to the beneficiary OR
Distributable Net Income (DNI) less adjusted tax exempt interest
What items may be deducted against annual income for an estate?
Carrying on a trade or business
Production of income
Mgmt of income-producing property (including executor fees)
Determination, collection, or refund of any tax
Contributions to charity
How much is the standard exemption for an estate?
$600
When is the tax return for an estate due?
April 15
Is the estate required to make estimated payments, and if so, how much is due?
Exempt for the first two tax years.
How are taxes for a trust calculated?
Annual income tax uses corporate rates, but they are escalated faster than a corporation.
Can either a trust or an estate use a fiscal year end?
A trust MUST use a calendar year end.
An estate may use a calendar or fiscal year end.
How are long- and short-term capital gains and losses netted for an estate or for a trust?
Short-term losses can offset long-term gains.
How are taxes for estates calculated?
Annual income tax uses corporate rates, but they are escalated faster than a corporation,
plus a one-time transfer tax on the owner’s death that occurs if the gift tax limitations are exceeded (estate and gift tax are unified)
Estates may use an annual exemption of $600 (this is NOT a standard deduction)
Who is the Grantor of the trust?
The person who established the trust and retains control over its assets.
What items may be deducted against annual income for a trust?
Mgmt of principal and application of income
Expenses incurred in connection with principal
Investing and reinvesting principal
Ordinary expenses required to mgmt or preserve the property (such as real estate taxes)
Preparation of property for sale or rental
Allowance for depreciation
What are the 3 types of trusts?
Simple
Grantor
Complex
What are the rules for a simple trust?
Only makes distributions out of current income; not from corpus
Must distribute all current income
Cannot take a deduction for a charitable contribution
Is provided a $300 exemption in arriving at taxable income
A grantor trust is considered a __________ for tax purposes.
Disregarded entity
All income or deduction are reporting on the income tax return of the grantor
True / False: A grantor trust can be a qualified shareholder of an S-Corp
True
How is a complex trust different from a simple trust?
A complex trust an accumulate current income (simple trust just distribute all current income)
A complex trust may distribute principal (simple trust cannot)
A complex trust may deduct charitable contributions (simple trust cannot)
A complex trust is provided a $100 exemption in arriving at taxable income.
True / False: A trust can begin as a simple trust, but then change to a complex trust over time or upon entire distribution.
