A grantor trust essentially is ignored under the tax law. The entity still files a Form 1041, but for the most part it is “blank.” The Form 1041 reports the names and identification numbers of the grantor and beneficiaries of the trust—all income, deduction, credit, and AMT-related items are assigned to the grantor. Thus, grantor trust rules restrict the ability of the trust creator to shift income and other tax consequences to the income beneficiaries.18.ANS:One or more of the following conditions can trigger grantor trust status. •The trust is reversionary as to the grantor.•The grantor can revoke the trust.•The grantor retains the entity’s income or enjoyment of the corpus.•The grantor can direct trust income without the consent of an adverse party.•The grantor can borrow from trust corpus for less than full and adequate consideration.19.ANS:A Form 1041 is required if the estate or trust recognizes at least $600 gross income, or if a trust has a positive amount of taxable income. The return and any amount of tax due is due, before extensions, no later than the fifteenth day of the fourth month following the end of the tax year; for a calendar taxpayer, this is April 15.Estimated tax payments must be made by a fiduciary entity. Charitable trusts and private foundations need not make estimated payments. Estates and grantor trusts need make estimated payments only beginning with the tax year that ends two or more year’s after the date of the decedent’s death.20.ANS:Where fiduciary entities are used to shift income among taxpayers, the following planning objectives should be kept in mind.•Sprinkling trusts allow flexibility for the trustee to direct income in a tax-wise manner.•High-income and high-wealth taxpayers usually should be given second-tier beneficiary status.•Income shifting goals are limited by the fiduciary’s high marginal tax rates, and by the kiddie tax.•Trust vehicles should be restricted to cases where professional management will produce asset returns sufficient to justify the associated administrative costs.
PTS:1DIF:1REF:p. 20-26OBJ:4NAT:AICPA FN-Reporting | AACSB AnalyticMSC:5 min
PTS:1DIF:1REF:p. 20-25 to 20-27OBJ:4NAT:AICPA FN-Reporting | AACSB AnalyticMSC:5 min
PTS:1DIF:1REF:p. 20-27 | p. 20-28OBJ:4NAT:AICPA FN-Reporting | AACSB AnalyticMSC:5 min