The Intersection of Fiduciary Accounting and Taxation

Author: Klaralee R. Charlton

Understanding how distributions from a trust may impact the taxable income of a beneficiary is important for any fiduciary or adviser. In this course participants will briefly review the fiduciary accounting process and then learn how income and principal allocations affect the division of the income tax burden between the trust and its beneficiaries.

Publication Date: May 2019

Topics Covered

• Brief Review of Fiduciary Accounting
• Fiduciary Accounting-More Than Just Numbers!
• Classifying Tier I and Tier II Beneficiaries
• Adviser's Responsibilities
• The Five Steps
• Uniform Fiduciary Income and Principal Act
• UFIPA Default "Income" & "Principal" Definitions
• Receipts from Entities
• Discretionary Disbursement Allocations
• Examples
• Intersection of Fiduciary Accounting & Taxation
• Income Distribution Deduction
• Line 18: Income Distribution Deduction
• Schedule B: Income Distribution Deduction
• Income Tax Rate: Trusts vs Individual
• Distribution Tiers
• Trust Accounting Income & Principal
• Form 1041: Income
• Allocating Gains Between Beneficiaries and Trust
• Form 1041: Deductions
• Form 1041: Schedule B & Deductions
• Allocation to K-1s

Learning Objectives

• Identify the differences between the fiduciary accounting and the preparation of the fiduciary income tax return
• Recognize and analyze the feasibility of allocating deductible expenses against classes of income
• Describe beneficiaries based on their rights under the terms of the governing document
• Identify the impact of classifications on beneficiaries and advise fiduciaries of their obligations under the governing document or law
• Identify steps with respect to an adviser's responsibilities
• Identify an example of income for purposes of analyzing and allocating receipts
• Identify a type of mandatory distribution
• Differentiate types of disbursements
• Recognize which line on IRS Form 1041 an income distribution deduction is included
• Recognize the tax rate for trust income equal to the top tax rate for individuals
• Identify key considerations related to fiduciary accounting
• Describe capital gains
• Differentiate statements an adviser would conclude as a type of discretionary distribution
• Recognize considered income instead of principal related to UFIPA allocation
• Identify which Schedule on Form 1041 is used to determine the income distribution deduction
• Differentiate Code Sections and which one applies to income distribution deductions
• Describe how tiers apply

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
Basic understanding of Fiduciary Accounting.

Advance Preparation
None