Inclusion of Capital Gains in Distributable Net Income for Trusts and Estates: Allocations for Optimal Tax Treatment

Fiduciary Accounting Rules, Treas. Reg. Section 643(a)-3(b) Provisions, State Unitrust Rules, Withdrawal Powers and IRC Section 678

A live 90-minute CLE/CPE video webinar with interactive Q&A

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Wednesday, February 15, 2023 (in 9 days)

1:00pm-2:30pm EST, 10:00am-11:30am PST

or call 1-800-926-7926

This CLE/CPE course will provide trust, estates, and tax counsel an in-depth analysis of the rules and practices covering the inclusion of capital gains in distributable net income (DNI) for trusts and estates. The panelist will review the requirements within trust documents to allow treating capital gains as DNI. It will explore state and local requirements for including capital gains in fiduciary accounting income (FAI) where the trust's governing document does not contain such a provision.

The presentation will also discuss the use of IRC Section 678 to have capital gains includable in a beneficiary’s income.

Description

The treatment of capital gains held within a trust or estate involves complex tax rules and effective planning for fiduciary accounting and estate planning. Trusts, estates, and tax counsel must understand essential planning methods and potential pitfalls in treating capital gains as DNI.

Where the executor of the estate or administrator of the trust has the discretion, the general practice is to distribute income whenever possible. However, trust accounting rules and IRC 643 generally treat capital gains as part of the corpus of the trust.

The current tax treatment of trusts provides a significant incentive for getting capital gains out of a trust. Currently, trusts are taxed at the maximum rate on any capital gains above the statutory threshold.

Additionally, these amounts are subject to the 3.8 percent NIIT, which results in a much higher tax rate on trusts than on individuals. Achieving lower overall taxes can be as simple as including capital gains in DNI rather than added to the corpus amount.

Getting the most beneficial treatment of capital gains income involves careful planning and drafting by estate planners and tax counsel. If capital gains are included in DNI, lower overall taxes are generally achieved. Counsel must pay close attention to ensure the trust document and the trust return permit distribution of capital gains to beneficiaries as income.

Listen as Gregory V. Gadarian, Partner at Gadarian & Cacy, discusses trust document provisions to allow treating capital gains as DNI, state and local requirements and issues, and best practices for making the most tax-advantaged treatment of trust capital gains.

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Outline

  1. IRC Section 643 and FAI rules
  2. Including capital gains in DNI; Treas. Reg. Section 643(a)-3(b)
  3. State unitrust rules
  4. Withdrawal powers over trust taxable income
  5. Non-tax considerations and best practices for estate planners and tax counsel

Benefits

The panelist will review these and other key issues:

  • The requirements of IRC §643 on the treatment of capital gains and FAI
  • Structuring trust documents to allow the inclusion of capital gains in DNI
  • Distribution of assets and the total-return-investing under the UPAIA
  • Local and state provisions that may allow capital gains inclusion in DNI

Faculty

Gadarian, Gregory
Gregory V. Gadarian

Partner
Gadarian & Cacy

Mr. Gadarian's practice focuses on tax strategy, estate planning and asset protection law. Previously, he was a...  |  Read More

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You may pre-order a recording to listen at your convenience. Recordings are available 48 hours after the webinar. CPE credit is not available on recordings. Strafford will process CLE credit for one person on each recording. All formats include course handouts.

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