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Sunday, April 13, 2014

ARTICLE ABSTRACT: Minimize Capital Gains Tax of Estates, Trusts, and Beneficiaries

TITLE
Minimize Capital Gains Tax of Estates, Trusts, and Beneficiaries
AUTHOR(S)
Nicholas E. Christin, William A. Snyder
PUBLICATION
Estate Planning Journal, April 2014
PUBLISHER
WG&L
ABSTRACT
    • Trusts are taxed at the highest rate on capital gains at a very low income threshold ($12,150 in2014), as well as being subject to the 3.8% Medicare tax on capital gains at the same low threshold.
    • Lower overall taxes will often be available if capital gains are included in DNI and distributed to beneficiaries.
    • General review of Treas. Regs. §1.643(a)-3 rules on inclusion of capital gains in DNI.
    • Regular practice of trustee characterizing discretionary principal distributions as capital gain distributions (should commence from first tax year) as a method of including capital gains in DNI.
    • Use of power to adjust to include capital gains in DNI.
    • Total return unitrusts as a method to include capital gains in DNI- providing an ordering rule in the trust itself, using a state ordering statute.
    • Need to address these issues in the first tax year of the trust, and to consistently apply allocation rules thereafter.
RESEARCH TAGS
Capital gains; DNI; income taxation of trusts; Code §§643, 661, 662; Treas. Regs. §1.643(a)-3

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