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29 Cards in this Set
- Front
- Back
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You can only elect to use the FV six months after death if |
The election will reduce both the gross estate and the federal estate tax liability |
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Estate tax deduction items |
funeral expenses, administrative expenses, debts and mortgages, casualty losses during the estate administration, state death taxes, charitable bequests (no limit), and an unlimited marital deduction for the FMV of property passing to a surviving spouse |
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Form 706 is known as what? |
Final estate tax return Generation skipping tax return
Shows assets (not income) |
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When must Form 706 be filed? |
Nine months after the decedent's death unless an extension has been granted |
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When must a Form 706 be filed? |
The decedent's gross estate exceeds $5,250,000 (2013) |
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Generation skipping taxes |
imposed on transfers in addition to the federal gift and estate taxes and is designed to prevent individuals from escaping an entire generation of gift and estate taxes by transferring property to, or in trust for the benefit of, a person that is two or more generations younger than the donor or transferor |
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Calculating generation skipping taxes |
The tax approximates the transfer tax that would be imposed if property were actually transferred to each successive generation, and is imposed on taxable distributions, taxable terminations, and direct skips to someone at least two generations below that of the donor or transferor. |
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Taxable distribution of generation skipping |
A taxable distribution is a distribution out of a trust’s income or corpus to a beneficiary at least two generations below that of the grantor (unless the grandchild’s parent is deceased and was a lineal descendant of the grantor) while an older generation beneficiary has an interest in the trust. |
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A direct skip occurs when |
A direct skip occurs when one or more generations are bypassed altogether and property is transferred directly to, or in trust for, a skip person. |
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Generation skipping tax rate |
40% (2013) |
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Generation skipping tax exemptions |
1. A $5,250,000 exemption per transferor for 2013 ($5,120,000 for 2012) 2. An unlimited exemption is available for a direct skip to a grandchild if the grandchild’s parent is deceased and was a lineal descendant of the transferor |
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Form 1041 |
US Fiduciary Return Has income of decedent and for setting up trusts |
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Form 1041 must be filed if |
if estate/trust has gross income of $600 or more, or has a beneficiary who is a nonresident alien |
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When is form 1041 due? |
by the 15th day of the fourth month following the close of the estate or trust’s taxable year
trusts must use calendar year estates can use calendar or fiscal |
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Does alternative minimum tax have to be calculated for Form 1041? |
Yes |
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Estimated payments for estates or trusts |
Generally required to make estimated tax payments
However, estates do not have to make estimated payments for taxable years ending within two years of the decedent’s death |
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Two types of trusts |
Simple trust Complex trust |
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Simple trust |
Set up so that it requires that the trustee distributes all the income to the beneficiaries each year
They cannot make charitable contributions out of trust income
They cannot distribute trust assets during the year (the corpus) |
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Complex trust |
Any trust other than simple trusts |
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How to compute estate or trust taxable income |
Gross income (Allowable deductions) |
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Allowable deductions for estates or trusts |
Generally the same as for individuals
Needed expenses that produce taxable income (not tax exempt income) |
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Administrative expenses election options |
Can deduct on Form 706 or Form 1041 Cannot do both |
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Funeral expenses election options |
Cannot be deducted on Form 1041 Only deductible on Form 706 |
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Personal exemption amount for trusts and estates |
(1) $600 for estate (2) $300 for trusts required to distribute all income currently (3) $100 for all other trusts |
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Charitable contributions deducted on 1041 rules |
Simple trusts cannot make charitable contributions
Can be deducted without limitation if paid out of the income from estates or trusts
Contributions are not deductible on 1041 if the out of tax exempt income |
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Form 1041 treatment of capital gains and losses |
Capital losses are offset capital gains and a net capital loss of up to $3,000 can be deducted with the remainder carried forward.
Unused capital loss and NOL from decedent's final 1040 are not allowed for deductions |
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Income distribution deduction |
Amount that will flow through and end up on 1040 |
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Income distribution deduction place in formula on Form 1041 |
+ Gross dividends + Gross taxable interest income + Net rental income <-- so far value goes to 1040 (Deductions) = Taxable income <-- everything so far to K-1
(Distributable NI) = 0 taxable income |
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Distributable net income |
Income taxable to beneficiary |
