Distributable Net Income: Mastering Difficult DNI Calculations for Estates and Complex Trusts

Case Study on DNI Computations and Tax Planning Opportunities

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, December 8, 2016

Recorded event now available

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Program Materials

This webinar will provide tax advisers and professionals with a deep dive into the often difficult task of calculating distributable net income (DNI) for complex trusts. The panel will delineate the difference between trust accounting income and taxable income and focus on tax reporting of trust income from assets such as partnership interests, capital gains, and tax exempt interest. The speakers will offer examples of DNI calculations and discuss tax planning scenarios in a case study.

Description

One of the more complex tasks in both fiduciary and tax accounting involves the calculation of trust accounting income and the tax concept of DNI. DNI determines both the maximum income distribution deduction a trust or estate may claim and the amount beneficiaries must report as taxable income on their tax returns. Section 643 and its regulations govern the calculations required to arrive at DNI. Tax advisers must be proficient in handling the complexity of DNI computations.

The presence of tax exempt income or a provision in the trust document that allows for capital gains to be included in DNI are two factors that can make DNI calculations so difficult. Also, scenarios where actual distributions are either greater than or less than actual DNI impact the tax reporting and final computing of trust AGI.

Accurate calculation and management of DNI can provide advisers with planning opportunities to minimize tax. The “65-day rule,” detailed in IRC Section 663(b), allows fiduciaries to treat distributions made within 65 days after the trust or estate’s year-end to be treated as made in the current tax year. These distributions apply to the entity’s income distribution deduction, and can result in significant overall tax savings. Advisers should be cognizant of the Section 643(e) election and how that affects DNI, as well as how specific bequests under Section 663(a)(1) do not carry out DNI.

Listen as our experienced panel provides a detailed roadmap on proper calculation of DNI under various income and distribution scenarios, and offers best practices for tax minimization planning around DNI computations and leveraging distribution rules.

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Outline

  1. Trust accounting income vs. DNI
  2. Calculation of DNI under various income scenarios
    1. Tax exempt income
    2. Capital gains and when they can be included in DNI
    3. When DNI exceeds actual distributions
    4. When actual distributions exceed DNI
  3. Allocation of DNI among beneficiaries
  4. “Tier I” vs. “Tier II” distribution requirements
  5. Planning opportunities and the “65-day rule”
  6. Section 643(e) election and effect on DNI
  7. Specific bequests under Section 663(a)(1)

Benefits

The panel will discuss these and other critical issues:

  • How to treat tax exempt income in DNI calculation
  • How to calculate income distributed deduction
  • How to report capital gains if includable in DNI
  • Planning opportunities and the “65-day rule”

Faculty

Doyle, Jere
Jeremiah W. Doyle, IV

Senior Wealth Strategist
BNY Mellon Wealth Management

Mr. Doyle provides clients with integrated wealth management advice on how to hold, manage and transfer their...  |  Read More

Patterson, Jacqueline
Jacqueline Patterson

Partner
Buchanan & Patterson

Ms. Patterson specializes in tax, estate and financial transactions, with an emphasis on asset protection and...  |  Read More

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