Income Tax Consequences of Funding a Bequest: Specific, Pecuniary, and Residuary Distributions

Note: CLE credit is not offered on this program

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

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Conducted on Wednesday, August 11, 2021

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Course Materials

This course will explain the taxation of distributed assets and whether the distribution carries out DNI (distributable net income) to the beneficiary for fiduciaries and estate tax advisers. Our panel of fiduciary tax veterans will analyze specific, formula, and residuary bequests made to individuals and trusts to determine how the estate and its heirs are taxed.

Description

Determining whether bequests carry out DNI, how they are taxed, and whether the trust or the beneficiary is taxed is complicated. As defined in Section 663(a)(1), specific bequests do not carry out DNI under specific circumstances. This is an exception to the general rules under Sections 661 and 662 requiring the inclusion, in beneficiaries' gross income, of amounts required to be paid, credited, or distributed by an estate or trust.

Unless satisfying a pecuniary bequest, distributing property generally does not generate a gain or loss for an estate or trust. The beneficiary receives the property at the trust or estate's basis. However, Section 643(e)(3) provides an election for recognition of the gain or loss on property distributions by the entity.

Bequests are rarely simple. Even after determining whether a bequest is specific, pecuniary, or residual, the executor may substitute property to satisfy a bequest. Additionally, distributions often include formula allocations to marital and bypass trusts. Trust and estate advisers need to grasp the intricacies of these bequests and elections to properly tax trusts and their beneficiaries.

Listen as our panel of trust and estate tax experts explains the types of funding requests, the applicable holding periods, and the basis of assets received by beneficiaries of bequests.

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Outline

  1. Funding bequests introduction
  2. Types of distributions
  3. Distributions and DNI
  4. Capital gains
  5. Holding period
  6. Distribution of substituted property
  7. Basis of assets
  8. Marital trusts
  9. Other considerations

Benefits

The panel will cover these and other critical issues:

  • Which distributions carry out DNI?
  • When should an election be made under Section 643(e)(3) for recognition of gain by a trust or estate?
  • How is the basis in appreciated assets determined by the beneficiary?
  • When is a pecuniary bequest not taxable to a beneficiary?
  • What are the three funding approaches outlined in Revenue Procedure 64-19 for marital pecuniary bequests?

Faculty

Doyle, Jere
Jeremiah W. (Jere) Doyle, IV
Senior Vice President
Bank of New York Mellon

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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