Critical Elections for Trust, Gift, and Estate Returns: Forms 1041, 709 and 706; GST, QTIP, 663(b), 645

Description

How often do you prepare a trust return and see the trust's marginal tax rate is too high? Section 663(b) provides a window of opportunity to utilize distributions made within the first 65 days of subsequent year in the current year, thereby shifting income to the beneficiary's tax return.

An executor or practitioner has many elections to consider for estate income tax returns. First, there is electing the fiscal year of the estate, which provides deferral opportunities. Next, under Section 645, an executor can combine a revocable trust with the estate return and file a single Form 1041. The benefits of combining these returns are more than merely eliminating the administrative burden of filing two returns.

Portability and the largest estate and gift exemptions ever, $12.06 million in 2022, have left significantly fewer taxable estates. Considering the higher exemption and the availability of portability, whether or not to make a QTIP election on assets transferred via a trust for the benefit of a spouse deserves scrutiny. Making or not making the election determines whether the trust's assets are stepped-up again upon the surviving spouse's death and whether the surviving spouse receives the full benefit of the first spouse's exemption.

For inter-vivos transfers, there are numerous gift tax elections to consider. Perhaps the most complicated consideration is whether to elect using the GST exemption for the transfer(s) made. Many practitioners fail to make these allocations or make them incorrectly. Experts recommend that you proactively choose to either use or elect out of the automatic GST allocations. A more straightforward consideration is the election to split gifts made by spouses. Too often though, required gift tax return filings get overlooked/missed. Practitioners often are not aware their client has made a taxable gift.

Listen as our panel of experts identifies and explains critical elections for Forms 706, 709, and 1041, the situations applicable to each election, and how to make each election.