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Distributable Net Income: Mastering Difficult DNI Calculations for Estates and Complex Trusts

Case Study on DNI Computations and Tax Planning Opportunities

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Monday, July 15, 2024

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers and professionals with a deep dive into calculating distributable net income (DNI) for complex trusts. The panel will delineate between trust accounting income and taxable income and focus on tax reporting of trust income from assets, such as partnership interests, capital gains, and tax-exempt interest. The speakers will demonstrate DNI calculations and discuss tax planning scenarios in a case study format.

Description

Calculation of trust accounting income and the tax concept of DNI is one of the more complicated tasks in both fiduciary and tax accounting. DNI determines the maximum income distribution deduction that a trust or estate may claim and the amount that beneficiaries must report as taxable income. Section 643 and its regulations govern the calculations required for DNI. Tax advisers must be proficient in handling complex DNI computations.

Two factors that make DNI calculations so vexing are the presence of tax-exempt income or a trust situation that allows DNI to include capital gains. Also, scenarios where actual distributions are either higher than or less than actual DNI affect tax reporting and final computing of trust AGI.

Accurate calculation and management of DNI provide advisers with planning opportunities to minimize tax. The "65-day rule," detailed in IRC 663(b), allows current tax year treatment by fiduciaries of distributions made within 65 days after the trust or estate's year-end. These distributions apply to the entity's income distribution deduction and can result in significant overall tax savings. Advisers must know how the 643(e) election affects DNI and how specific bequests under Section 663(a)(1) do not carry out DNI.

Listen as our experienced panel provides a detailed roadmap on the proper calculation of DNI under various income and distribution scenarios and offers best practices for tax minimization planning around DNI computations and leveraging distribution rules.

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Outline

  1. Trust accounting income vs. DNI
  2. Calculation of DNI under various income scenarios
  3. Allocation of DNI among beneficiaries
  4. "Tier I" vs. "Tier II" distribution requirements
  5. Planning opportunities and the 65-day rule
  6. Section 643(e) election and impact on DNI
  7. Specific bequests under Section 663(a)(1)

Benefits

The panel will discuss these and other critical issues:

  • Treatment of tax-exempt income in DNI calculation
  • Calculation of income distributed deduction
  • Reporting capital gains if includable in DNI
  • Planning opportunities and the 65-day rule

Faculty

Doyle, Jere
Jeremiah W. (Jere) Doyle, IV
Senior Vice President
Bank of New York Mellon

Mr. Doyle provides clients with integrated wealth management advice on how to hold, manage and transfer their...  |  Read More

Patterson, Jacqueline
Jacqueline Patterson, CPA, JD
Partner
Buchanan & Patterson

Ms. Patterson specializes in tax, estate and financial transactions, with an emphasis on asset protection and...  |  Read More

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