Taxation of Estates & Trusts Flashcards

Which IRS form must an estate file to report income earned after the decedent's death?

Answer: Form 1041

Form 1041 (U.S. Income Tax Return for Estates and Trusts) reports income earned by an estate or trust after the decedent's death.

What is the maximum estate tax rate under current federal law?

Answer: 40%

The federal estate tax rate is a flat 40% on the taxable estate value exceeding the applicable exclusion amount.

A trust distributes $20,000 of DNI to its sole beneficiary. How much income must the beneficiary report?

Answer: $20,000

Under the conduit principle, distributions carry out DNI to beneficiaries dollar-for-dollar, so the beneficiary reports the full $20,000.

Which trust is treated as a 'grantor trust' for income tax purposes when the grantor retains the power to revoke?

Answer: Revocable living trust

A revocable living trust is a grantor trust because the grantor retains control, so all trust income is reported on the grantor's personal return.

For estate tax purposes, what does the 'gross estate' include?

Answer: All assets in which the decedent had an includible interest at death

The gross estate under IRC §2031 includes probate and non-probate assets in which the decedent held an includible interest, such as life insurance and retirement accounts.

An estate elects the alternate valuation date. What is the maximum allowable period after the date of death?

Answer: 6 months

IRC §2032 permits estates to elect an alternate valuation date of six months after the date of death if it reduces both the gross estate and estate tax.

Which deduction reduces a decedent's gross estate for debts owed at the time of death?

Answer: Claims against the estate deduction

IRC §2053 allows deductions for funeral expenses, administration expenses, and claims against the estate, including debts the decedent owed at death.