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

A live 110-minute CPE webinar with interactive Q&A

This program is included with the Strafford CPE Pass. Click for more information.
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Monday, November 4, 2024 (Tomorrow)

1:00pm-2:50pm EST, 10:00am-11:50am PST

or call 1-800-926-7926

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

Edmondson, S. Gray
S. Gray Edmondson

Partner
Edmondson Sage Allen

Mr. Edmondson practices in partnership, corporate, and individual tax planning; business transactions including mergers...  |  Read More

Jannol, Neal
Neal B. Jannol

Attorney
Law Offices of Neal B. Jannol

Mr. Jannol is a sole practitioner in Los Angeles at the Law Offices of Neal B. Jannol. He has been an attorney for more...  |  Read More

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