Estates

Income Taxation of Trusts and Estates

Introduction

This entry covers the federal income taxation of estates and trusts, which is generally covered in Subchapter J of the IRC. It covers both testate and intestate estates, inter vivo trusts and testamentary trusts. It includes consideration of:

• the theory and overview of subchapter J;
• a working definition of estates and trusts;
• general taxation rules; and (4) special rules for estates and trusts.

Practical application of these rules is provided throughout the analysis.

The entry explains the implementation of the general income tax theory which imposes a tax on the income earned from gifts and devices, but not the gifts and devices themselves. It also discusses the concepts unique to Subchapter J applicable to estates and trusts such as distributable net income as a qualitative and quantitative measure for allocating income between the estate or trust and its beneficiaries.

The entry contrasts estates and trusts with other entities such as corporations and associations, and with other relationships, such as agency relationships and debtor-creditor relationships. Consideration is also given to when an estate or trust begins and ends for federal income tax purposes.

The entry also addresses the repeal of the throwback rules, the election to treat the decedent’s revocable trust as part of the decedent’s estate, and the simplified taxation available for pre-need funeral trusts, as well as the impact of related IRS regulations.