Successfully Completing an Income Tax Return for a Trust or Estate -- Form 1041 (FM41)

Overview

Some of your clients have estate plans that provide for testamentary trusts. Other clients make gifts to irrevocable trusts during their lifetime. And some will die with probate estates. Therefore, you should have a basic understanding of how the income tax applies uniquely to trusts and estates. For example, “distributable net income” (DNI) is a trust-only concept that is essential to understand. Plus, the deductions for fiduciary fees, charitable deductions and certain miscellaneous deductions (such as investment advisory fees, and attorney/accountant fees) are treated differently than for individual taxpayers. However, with a decent understanding of the basic income tax and net investment income tax (NIIT) rules, you can add significant value to your clients.

Major Topics:

• Passive activity rules for trusts including the NIIT
• The different types of trusts for income tax purposes (e.g. simple, complex, grantor, charitable)
• The critical categorization of income (taxable income vs. fiduciary accounting income)
• Distributable net income (DNI) and how it works
• The “Tier” Rules
• The Separate Share Rule
• IRC 663(b) “65-Day” Rule
• IRC §691(c) Deduction
• QSST and EBST elections
• How to treat excess deductions on termination
• Grantor trust rules and how they impact planning and return preparation
• The income tax side of Domestic Asset Protection Trusts

Learning Objectives:

• Understand how to file a basic income tax return for an estate or trust – form 1041