Weighing Income Tax Implications

• Author: Margaret A. Munro, Kathryn A. Murphy
• Profession: Has more than 30 years' experience in trusts, estates, family tax, and small businesses/Attorney with more than 20 years' experience administering estates and trusts and preparing estate and gift tax returns
• Pages: 319-329

CHAPTER 19 Weighing Income Tax Implications 319

Chapter19

Weighing Income Tax

Implications

How simple would life be if there were one set of hard-and-fast rules about

how to split the income among the decedent, the estate (or trust), and the

income beneciaries? Unfortunately, no such set of rules exists. There is,

however, a whole subspecialty called post-mortem tax planning, which is merely a

way to legally allocate all items of income and expense to the taxpayer who can

most eectively use it, whether by keeping everyone’s marginal tax brackets

lower or by making sure that all deductions are usable against taxable income. All

it takes is a little advance planning.

In this chapter, we show you how to keep the income taxes owed by the decedent,

the estate, and/or the trust to the bare minimum. After all, no one should pay

more than they’re legally obligated to pay while they’re alive, and that’s even

truer after death. And there’s nothing worse than the realization that, with a little

planning, you could have turned a large tax bill for the estate into a minimal or

even nonexistent one.

Estates allow the greatest scope for post-mortem tax planning because they’re

short-lived and the amounts coming in and going out are often large and one-

time only. But you can also apply this sort of planning to minimize the income tax

consequences to trusts and their beneciaries on a more limited scale. Just bear in

IN THIS CHAPTER

»

Planning for taxes before, and after,

death

»

Equalizing taxable income between

the decedent, the estate (or trust),

and the beneciaries

»

Getting acquainted with the

Unearned Income Medicare

Contribution tax