Donna Died on June 1 of the Current Year

question 104

Essay

Donna died on June 1 of the current year. The executor considers the following information when preparing her estate tax return:
• In 1997, Donna transfers title to her personal residence to her son. The residence is worth $60,000 on the transfer date. Donna continued to live alone in the residence until her death. She did not pay any rent. At her death, the residence is worth $100,000.
• In 1998, Donna created an irrevocable trust and funded it with $300,000 of assets. Donna names a bank as trustee. According to the trust agreement, all the trust income is to be paid out annually for 25 years. The trustee, however, is to decide how much income to pay each year to Donna's son and daughter. Upon termination of the trust, the assets are to be distributed equally among her two children or their estates. The trust's assets are worth $320,000 when Donna dies.
• In 1998, Donna created a revocable trust with a bank named as trustee. She named her grandchild Joe as the beneficiary for life. Upon Joe's death, the property is to be distributed equally among Joe's descendants. The trust assets are worth $300,000 when Donna dies. How much would be included in Donna's gross estate?

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Definitions:

U.S. GAAP

Generally Accepted Accounting Principles as practiced in the United States, a framework of accounting standards, principles, and procedures.

Reversing Temporary Difference

A temporary difference that will result in deductible amounts in future years, affecting taxable income.

Originating Temporary Difference

An originating temporary difference in accounting refers to the initial differences between the book value of an asset or liability and its tax base, which will result in taxable or deductible amounts in the future.

Permanent Difference

An accounting difference between the taxable income and accounting income that will not reverse in future periods.