EST2401P. Including Gains in Distributable Net Income (DNI)

Gains are normally taxed to the trust or estate, not to the beneficiary. The combination of the compressed income tax rates for trusts and estates combined with the 3.8% surtax on net investment income may cause the tax at the entity level to be much higher than if the gains were taxed to the beneficiary. This session will discuss the three ways under Reg. 1.643(a)-3(b) that may enable the fiduciary to include capital gains in DNI so that they be taxed at the beneficiary level.

Learning Objectives:

• Identify how distributable net income is calculated and why gains are normally taxed to the trust or estate and not to the beneficiary.
• Identify how the regulations under Section 643 allow gains to be included in DNI if the trust meets one of two prerequisites and uses one of three methods.
• Identify how the distribution of property in-kind to satisfy a residuary bequest can gets gains out to a beneficiary without have to meet the requirements of the regulations under Section 643.