Term
| INCOME TAXATION - Principal vs. Income |
|
Definition
| Tax is imposed on taxable income (TI) of trusts and estates, not on items treated as fiduciary principal |
|
|
Term
| INCOME TAXATION - Simple Trust |
|
Definition
A simple trust is formed under an instrument having the following characteristics:
1) Requires current distribution of all its income
2) Requires no distribution of the res (i.e., principal)
3) Provides for no charitable contributions by the trust |
|
|
Term
| INCOME TAXATION - Complex Trust |
|
Definition
A complex trust is any trust other than a simple trust. A complex trust can
1) Accumulate income,
2) Provide for charitable contributions, and
3) Distribute amounts other than income. |
|
|
Term
| INCOME TAXATION - Grantor Trust |
|
Definition
| A grantor trust is any trust to the extent the grantor is the effective beneficiary. |
|
|
Term
| INCOME TAXATION - Filing Requirement |
|
Definition
| An estate with GI greater than or equal to $600 is required to file a tax return. A trust is required to file a return if it has either any taxable income or more than $600 of gross income. |
|
|
Term
| INCOME TAXATION - Filing Requirement |
|
Definition
| The trustee, executor, or administrator must file the return no later than the 15th day of the 4th month after the close of the entity’s tax year. |
|
|
Term
| INCOME TAXATION - Distribution Deduction |
|
Definition
| The deduction for distributions allocates taxable income of a trust or estate (gross of distributions) between the fiduciary and its beneficiaries. |
|
|
Term
| INCOME TAXATION - Distribution Deduction |
|
Definition
| Simple trust. The deduction is the lesser of the amount of the distributions (required) or distributable net income (DNI) (computed without including exempt income). |
|
|
Term
| INCOME TAXATION - Distributable Net Income |
|
Definition
| Distributable net income (DNI) is the maximum deductible at the fiduciary level for distributions and the maximum taxable at the beneficiary level. |
|
|
Term
| INCOME TAXATION - Income in Respect of a Decedent |
|
Definition
| Income in respect of a decedent (IRD) is all amounts to which a decedent was entitled as gross income but that were not includible in computing taxable income on the final return. The decedent had a right to receive it prior to death; e.g., salary was earned or a sale contract was entered into. |
|
|
Term
| INCOME TAXATION - Tax Year |
|
Definition
| An estate may adopt any tax year ending within 12 months after death. Most trusts must adopt a calendar tax year. |
|
|
Term
| INCOME TAXATION - Estimated Payments |
|
Definition
| Trusts and estates are required to remit payments of estimated tax. The required amount and due dates of installments are determined in the same manner as for individuals. An estate is not required to pay estimated tax for its first 2 tax years. |
|
|
Term
| BENEFICIARY’S TAXABLE INCOME - Simple Trust |
|
Definition
A beneficiary of a simple trust is taxed on the lower of the two amounts listed below.
1) Trust income required to be distributed (even if not distributed)
2) The beneficiary’s proportionate share of the trust’s DNI |
|
|
Term
| BENEFICIARY’S TAXABLE INCOME - Estates and Complex Trusts |
|
Definition
| A beneficiary of an estate or complex trust is taxed on amounts of fiduciary income required to be distributed plus additional amounts distributed to the beneficiary. However, the taxable amount is limited to the beneficiary’s share of DNI. |
|
|
Term
| BENEFICIARY’S TAXABLE INCOME - Character |
|
Definition
| The character of the income in the hands of the beneficiary is the same as in the hands of the trust or estate. |
|
|
Term
| BENEFICIARY’S TAXABLE INCOME - Schedule K-1 (Form 1041) |
|
Definition
| Schedule K-1 is used to report the beneficiary’s share of income deductions and credits from a trust or an estate. |
|
|
Term
| GIFT TAX - Definition of Gift Tax |
|
Definition
| The gift tax is a tax of the transfer imposed on the donor. |
|
|
Term
| GIFT TAX - Amount of Gift |
|
Definition
Any excess of FMV of transferred property over the FMV of consideration for it is a gift. A gift is complete when the giver has given over dominion and control such that (s)he
is without legal power to change its disposition. |
|
|
Term
| GIFT TAX - Basis in a Gift |
|
Definition
| Basis in a gift is basis in the hands of the donor plus gift tax attributable to appreciation. |
|
|
Term
| GIFT TAX - Annual Exclusion |
|
Definition
| The first $14,000 of gifts of present interest to each donee is excluded from taxable gift The $14,000 exclusion applies only to gifts of present interests. |
|
|
Term
| GIFT TAX - Gift Splitting |
|
Definition
| Each spouse may treat each gift made to any third person as made one-half by the donor and one-half by the donor’s spouse. |
|
|
Term
| GIFT TAX - Medical or Tuition Costs |
|
Definition
Excluded from taxable gifts are amounts paid on behalf of another individual as tuition to an educational organization or for medical care. The payment must be made directly to the third party, i.e., the medical provider or the
educational organization. Amounts paid for room, board, and books are not excluded. |
|
|
Term
| GIFT TAX - Charitable Deduction |
|
Definition
| The FMV of property donated to a qualified charitable organization is deductible. Like the marital deduction, the amount of the deduction is the amount of the gift reduced by the $14,000 exclusion with respect to the donee. |
|
|
Term
| GIFT TAX - Gift Tax Return |
|
Definition
| A donor is required to file a gift tax return, Form 709, for any gift(s), unless all gifts are excluded under the annual $14,000 exclusion, the exclusion for medical or tuition payments, or the deduction for qualified transfers to the donor’s spouse. |
|
|
Term
| ESTATE TAX - Estates Electing Estate Tax |
|
Definition
| The estate tax is an excise tax imposed on the transfer of the taxable estate of every decedent who was a U.S. citizen or resident. |
|
|
Term
| ESTATE TAX - Gross Estate (GE) |
|
Definition
| A decedent’s gross estate (GE) includes the FMV of all property, real or personal, tangible or intangible, wherever situated, to the extent the decedent owned a beneficial interest at the time of death. |
|
|
Term
| ESTATE TAX - Estate Tax Return |
|
Definition
The executor is required to file Form 706, United States Estate Tax Return
, if the gross estate exceeds a threshold of $5.25 million in 2013. Adjusted taxable gifts made by the decedent during his/her lifetime reduce
the threshold. The estate tax return is due within 9 months after the date of the decedent’s death. |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - Overview |
|
Definition
| The GSTT is imposed separately and in addition to gift and estate taxes on transfers directly or in trust for the sole benefit of a person at least two generations younger than the transferor. GSTT is generally imposed on each generation-skipping transfer(GST). A GST is a direct skip, a taxable distribution, or a taxable termination. |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - Direct Skip |
|
Definition
a. A direct skip is a transfer of an interest in property, subject to estate tax or gift tax, to a skip person. The transferor is liable for the tax.
b. A skip person is either a natural person assigned to a generation that is two or more generations below the transferor or a trust, all interests of which are held by skip persons.
c. In the case of related persons, a skip person is identified by reference to the family tree |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - Taxable Distribution |
|
Definition
| A taxable distribution is a distribution from a trust to a skip person of income or principal, other than a distribution that is a direct skip or taxable termination. The transferee is liable for the tax. |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - Taxible Termination |
|
Definition
A taxable termination is a termination of an interest in property held in trust. A taxable termination has not occurred if, immediately after the termination, a nonskip person has an interest in the property or if distributions are not permitted to be made to a skip person at any time following the termination.
1) Termination may be by lapse of time, release of power, death, or otherwise.
2) The trustee is liable to pay the tax. |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - GSTT vs. Estate Tax |
|
Definition
| The GSTT approximates the maximum federal estate tax that would have applied to the transfer on the date of the transfer. |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - Exemption |
|
Definition
| Each individual is allowed a $5.25 million exemption in 2013 that (s)he, or his/her executor, may allocate to GST property. The exemption is indexed for inflation. Gift splitting applies to GSTTs; $10.5 million is allocable. |
|
|
Term
| GENERATION-SKIPPING TRANSFER TAX (GSTT) - Inter Vivos |
|
Definition
| Inter vivos gifts are exempt from the GSTT if they are not subject to gift tax due to the $14,000 annual exclusion or the medical/tuition exclusion. |
|
|
Term
| INCOME TAXATION - Income Tax Formula |
|
Definition
Personal exemption. A deduction is allowable but not for the year the trust or estate terminates. The amount of the deduction is
a) $600 for an estate
b) $300 for a simple trust
c) $100 for a complex trust |
|
|
