Wiley CPAexcel Exam Review 2014 Focus Notes: Regulation

Module 39: Other Taxation Topics

TAXATION OF ESTATES AND TRUSTS

Estates

Results from death of individual

• Assets become part of estate
• Investments generate income
• Estate taxed on earnings

Trusts

Types of Trusts

Simple trusts

• Must distribute all income each year
• Cannot make charitable contributions
• Cannot distribute trust corpus (principal)

Complex trusts—all others

Trust Operations

Taxation of Trusts

Grantor (revocable) trust

• Creator has right to withdraw assets at any time
• Earnings taxed to creator (as if trust did not exist)

Irrevocable trust

• Creator generally may not withdraw assets
• Trust taxed separately from creator or beneficiaries

Computing Taxable Income of Trusts and Estates

Gross income

−	Deductions
−	Exemption
=	Taxable income

Gross Income

Same rules as for individuals

Includes

• Rents
• Dividends
• Interest
• Capital gains

Deductions

Generally similar to those available to individual

In addition

• Charitable contributions—No limit on amount
• Management fees—Fees paid to trustee or executor
  • Trust or estate may have nontaxable income
  • Proportionate amount of fees not deductible
• Distributions paid—Amounts paid to beneficiaries

Exemption

Estate—$600

Simple trust—$300

Complex trust—$100

Distributable Net Income (DNI)

DNI is maximum amount of distribution that can be taxed to income beneficiary

• Includes most income and expense items on trust tax return
• Includes ...