Entity taxation
The Estate, Gift, and Trust Rule
The annual exclusion clears present-interest gifts, the unified credit shelters the rest, and DNI caps what a trust's beneficiaries are taxed on.
How the exam words it
- -The stem makes gifts and asks for the taxable gift after the annual exclusion.
- -A gift is a future interest and it asks whether the exclusion applies.
- -It computes the taxable estate with the marital and charitable deductions.
- -A trust distributes income and it asks how distributable net income (DNI) splits the tax.
The playbook
- 1Apply the $19,000 annual exclusion per donee to present-interest gifts only; a future interest (a gift in trust with delayed enjoyment) gets no exclusion.
- 2Compute the taxable estate as the gross estate minus debts, expenses, and the unlimited marital and charitable deductions, then apply the unified credit.
- 3Shelter cumulative transfers with the basic exclusion amount, which is $15,000,000 per person for 2026 under OBBBA.
- 4Use DNI as the ceiling on both the income taxed to the beneficiaries and the trust's distribution deduction; distributions carry out income up to DNI.
The trap
Claiming the annual exclusion for a gift of a future interest. The exclusion applies only to present interests, so a gift in trust with no present right to enjoy it does not qualify.
How the exam varies it
The same pattern, re-skinned along these axes:
Gift tax versus estate tax versus fiduciary income taxPresent versus future interest, and the marital or charitable deductionThe unified credit and OBBBA exclusion versus the DNI limit on trust distributions
Drill this pattern
8 questions of The Estate, Gift, and Trust Rule from across the AUD topics. Clear it by getting 5 right with a streak of 3.