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  • Estates & Trusts

    Charles Burdoin, CPA

  • Today's Topics

    Fiduciary income tax-form 1041-income tax return for estates and trusts

    Fiduciary accounting-principal vs income

    Estate tax-tax on the right to transfer property at death-transfer tax

  • Estate Work is Good Work

    Can be done outside of tax season

    Higher level professional work = higher fees

    Short attention span-finish project and wait for next one

  • Building an Estate Practice

    Greatest source of estate work is your clients

    Start a dialogue "Do you have a will or trust?"



  • Capacity-age of majority & sound mind

    Must be in writing

    Need witnesses

    Holographic in some states


  • Terms

    Probate (a thing proved): gather assets, pay debts, distribute property

    Testate: died with a will or trust

    Intestate: died without documents

    Executor: named as personal representative in will

  • Terms (continued)

    Administrator: appointed by court; same duties as executor

    Trust: property sharing arrangement

    Beneficiary designation: assets pass without administration

  • Revocable Living Trust

    Avoids probate, faster, cheaper, private

    Shift financial management of assets to a trustee

    Provides continuity in case of death or incompetence

    Protect privacy of clients

  • Irrevocable Trusts

    Grantor gives up control and dominion

    Subject to gift tax on present value of assets

    Requires annual tax returns

  • Final Return

    Same standard deduction and exemption

    Must file if refund desired

    MFS-if must itemize, no standard deduction

    Must file if any tax on return

  • Form 1310 For Refunds

    Not required for married filing joint

    Not required for court-appointed fiduciary

    All others (adult children, successor trustee) must use Form 1310

  • Income to Be Included on Final Return

    Include items of income actually or constructively received before death

    Income received after death reported by successors-in-interest

    Watch out for "bad" 1099's received next January-will have to allocate

  • Wages Received After Death

    Reported on 1099-MISC, Box 3 under TIN of successor-in-interest, not decedent

    If paid in year of death, reported in Boxes 3 & 5 of W-2 (FICA) only

    If paid in next calendar year: no FICA, just 1099

  • Special Provisions

    Capital losses and NOL's

    Passive activity interests

    Medical expenses

    Moving expenses

  • Fiduciary Accounting

    Tells fiduciary how much to distribute to income beneficiary

    Tells how much to hold back for remainder

    Needed in computation of "income distribution deduction"

  • Trust Properties

    Trust is a property-sharing arrangement

    Grantor (trustor or settlor) drafts document

    Trustee takes legal title on behalf of benes

    Beneficial title rests with beneficiaries

    Beneficiaries: income or remainder

  • Interest Expense

    Investment-same as individual



    Sec. 6166-no; Sec. 6163-yes

  • Complex Trusts

    Can retain income at trust level

    Can distribute capital gain

    Can distribute principal

    Can make discretionary distributions

    Can deduct contributions

  • Contributions

    Must be complex trust

    Must be mentioned in trust document

    Must be paid from income

  • Business Losses

    Schedule C or F on Form 1041

    Rental losses

    Casualty losses

    Business losses from K-1

    Losses on sale of business assets

  • Expenses Subject to 2%

    Investment advice

    Custody or management of property

    Gift tax preparation fees

    Defense of claims by creditors

    Section 212: maintenance, insurance, gardening, etc.

  • Income in Respect of a Decedent

    Taxable on Form 706

    Taxable again on Form 1041/1040

    No "step-up" in basis

    Inheriting income, not asset

  • IRD Issues

    691(c) deduction only when "double taxed"

    Keep track of "basis"

    Can take deduction prior to 706 filing

    Alert beneficiaries to the deduction

    Include all info and calculation when taking deduction

  • Income Distribution Deduction

    Income passed to beneficiaries deductible by trust or estate so not taxed twice

    Income retained by estate or complex trust is taxable on Form 1041

    Distribution deduction for income, not assets

  • Simple vs. Complex or Estate

    Simple must distribute income-only tax is c/g

    Complex must distribute if no tax on 1041

    Use 65-day rule to clear out income for the year

    Fiduciary returns hit top bracket @ $12,300

    Don't forget NIIT-3.8%!

  • Tier System

    Tier one is from current income req. to be dist.

    Tier two is anything else

    Tier one recipients pay tax first

  • What's New

    New strategies emphasize including assets on 706 for basis step-up

    New Form 708-Covered expatriates

    Form 8971-Consistent basis reporting

    Final regulations on portability

  • Deadlines!!

    Final 1040-usual date (April 15th)

    Estate-15th day of 4th month (any fiscal year elected)

    Trusts-April 15th (unless 645 election)

    706-nine months

    Disclaimer- nine months, no extension

    Section 6163-nine months, no extensions

  • Valuation of Property

    General rule: date of death, FMV, highest and best use

    May be valued at sales price if close to DOD

    Alternate valuation date

    Special-use valuation

  • New 706 vs Old

    Portability sections

    Abbreviated reporting

    Schedule PC-protective claim

    Proof of personal rep's status

  • Elections

    Alternate valuation date-section 2032

    Special-use valuation-section 2032(a)

    Pay tax in installments-section 6166

    Postponement of tax on remainder interests-section 6163

  • Schedule A

    Describe property in sufficient detail so IRS can locate & inspect

    Use valuation expert; one who will go to tax court

    Be sure appraiser knows he's appraising for estate tax, not re-if

    Be alert to zoning, easements and other restrictions

  • Schedule B

    Value securities at the average high & low on DOD

    Worthless securities should be listed and valued @ zero

    Use for government bonds

  • Schedule F

    All 706's will have Sch. F because of questions

    For any assets that don't have their own schedules

    In general, list personal property at a minimum

  • Schedule G

    For transfers during decedent's life under sections 2035-2038

    Decedent's property held in revocable living trust

    Gift tax paid by decedent or spouse within 3 years of death

    Don't duplicate items here on Line 4 of Form 706

  • Post-Mortem Elections

    Elections and opportunities by executor

    Estate tax savings

    Income tax savings

    We will be involved at this point

  • Alternate Valuation-Section 2032

    Same date used for all property-it's all or nothing

    Can only be used if there is a tax and the tax goes down

    Property sold or distributed is valued at date sold

    Assets whose bases are reduced by 2032 will result in higher capital gains to beneficiaries

  • Special Use Valuation-Section 2032A

    Property used in farming or closely-held business can be valued at less than "highest and best" use

    Many requirements to use this benefit

    Total decrease in value cannot exceed $1.1 million for 2015 and $1.11 million for 2016

  • Qualified Conservation Easement

    Election made on timely filed return and is irrevocable

    Inter vivos, testamentary, or post-mortem

    Exclusion is impairment of value and charity enforces easement

    Easement must not be junior to a mortgage

  • Extension of Time to Pay Section 6166

    At least 35% of adjusted gross estate must be farm land or closely-held business; deferred tax is same per cent

    Only trade or business assets-not passive

    Interest only for 5 years, 1st of ten installments in 5th year

    Reduced interest rate on 1st $1.47M; 1st $1,480 in 2016

  • Marital Deduction

    Bypass trust or portability

    Watch out for intra-family disputes when there is a second marriage

    Portability for everyone??!!

  • Disclaimers

    In writing to executor within 9 months-no extensions

    Disclaimant must not have received property-except for year-of-death RMD.

    Disclaimant does not designate recipient. It's goes where it would have gone if disclaimant had predeceased decedent

    Keep beneficiary designations up to date