Excess beneficiary involvement can cost trust its tax status

Article Abstract:

Trusts are entitled to tax benefits similar to those provided for individuals. Beneficiary distributions, in particular, of trusts are permitted deductions that effectively reduce the total taxable income. However, trusts that are established based on business objectives are not afforded these tax advantages as a result of being classified as associations with tax requirements equivalent to that of corporations. Trusts are taxed at a maximum rate of 31% while associations have a top rate of 34%. Trusts are recharacterized as associations based on the presence of two characteristics that differentiate trusts from corporations. These are the direct participation of beneficiaries as associates and the existence of a business purpose. The absence of these two characteristics allows a trust to maintain its tax advantages.

Laws, regulations and rules, Associations, institutions, etc., Associations, Beneficiaries

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New estate and trust estimated tax rules

Article Abstract:

The IRS has issued guidelines for tax payments by estates and trusts in its Notice 87-32. The Tax Reform Act of 1986 requires payments of estimated taxes by estates for taxable years ending two or more years from the date when an individual dies, and for all trusts. Notice 87-32 indicates that there are three optional methods for calculating the estimated tax payments: current year, prior year, and annualized income. Detailed guidance is given in the Notice concerning what part of distribution deductions can be considered in calculating the annualized income option. The IRS will waive penalties if the fiduciary makes a 'good faith' attempt to calculate the amount of required installments and makes timely payments, since estimated payments are new to trusts and estates in 1987.

Decedents' estates

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Credit approach taken in new estate freeze regs

Article Abstract:

Adjustments and credits in the tax computation of transfers of interests governed by the special valuation provision of Sections 2701 and 2702 are considered in the Proposed Regulations covered by the new estate freeze rules of Chapter 14. The new Regulations offer guidelines pertaining to the transfers in trust, as well as to adjustments involved in the lapses of voting and liquidation rights.

Evaluation, Estate planning, Real property tax, Real property taxes

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