estate it refers to the mass of all property rights and obligations

of a person which are not extinguished by his death okay so what is being taxed here guys

in this income taxation topic is the income of the estate and not necessarily the transfer of estate from a
decedent to its beneficiaries or to its heirs but what is being taxed here is the income derived by the
estate prior to the distribution of that particular estate to the heirs because the taxation of the transfer
of that estate to its beneficiaries will be considered in your transfer taxes

but again our focus here is the computation of the income tax due of the income of the estate itself

on the other hand when we talk about trust it is the right on a property real or personal held by one
party for the benefit of another so again just like your estate what is also being taxed here is the income
of trust when it is in the hands or it when it is in the custody of the fiduciary before it is being distributed
or before it is being transferred to the beneficiary of the trust

okay now when does an estate and a trust becomes a taxpayer

an estate becomes a taxpayer when it is under settlement or administration so as what i have

mentioned earlier your estate becomes a taxpayer when an individual or shall i say a decedent taxpayer
or a deceased taxpayer is having an estate and then such estate is earning an income because obviously
when a taxpayer dies its estate may continue to earn an income and still that income earned by its
estate will be subject to tax

on the other hand trust would become a taxpayer if under the terms of the trust the fiduciary must
accumulate the income when we talk about fiduciary guys it is the um it is a person again who again
when we talk about fiduciary it is an individual who takes the custody of the property

being entrusted by the trust door to the beneficiary or in short fiduciary stands as the

trustee of the trustworth

okay so before the property will be distributed to the beneficiary due to inability of

that beneficiary to to take that propertymaybe due to the reason of minority of an individual or in short
an individual is still minor so that means that individual cannot have that property yet so therefore

there is that fiduciary who will take the temporary custody of the property that is being entrusted of the
trustworth

okay when that fiduciary accumulates income over from that trust then that means such trust

would be considered as a taxpayer

a trust is also a taxpayer if under the terms of the trust the fiduciary may accumulate or

distribute the income or in his discretion okay

in short guys there is an income tax derived by an estate or a trust when these two estate and trust
earns an income ,,,, continues to earn an income

when is the income of the trust taxable to the grantor

if under the term of the trust the title to any part of the corpus or principle of the trust may be revested
or reverted to the grantor, the income of the part the income of the part of the corpus or

principal shall be taxable to the grantor and if under the

term of the trust the income of the trust hall be applied for the benefit of the grantor the income that
shall be applied for the benefit of the grantor shall be shall be subject or shall be taxable to the grantor

treatment of income distribution of the

years income to

year or beneficiary okay

what will be our treatment if ever there are portion of the net income of the estate of that order of the
trust is being distributed to its beneficiary okay when an estate or trust is a taxpayer a distribution of the
year's income to an ear or beneficiary is considered as a special item of the deduction for the estate and
trust and a special item of income to the year or beneficiary so that means guys any distribution of

income from the income of the estate or trust will be considered as a deduction in computing for the
taxable income of the estate or trust

and on the other hand it is taxable income it will be added as other income on the point of view of the
yearor of the beneficiary the moment they have received their share in the net income of this estate or

trust

okay now

how are we going to tax an income of estate and trust

take note that when there is an income from an estate or trust it will be taxed as if it is an individual tax
payer

so therefore the format of computation for the taxable income and tax due of an individual taxpayer is
also applied in the competition of the taxable income and tax due of the net income of your estate or
trust so we have here for

example

gross income less deductions

so the allowed deductions for an estate or trust's income only comes into two ways first is the

allowed business expenses and second the distribution of the distribution of the year's income to the

heir or beneficiary so again guys simply to compute for the taxable net income of an estate or trust

just simply deduct your business expenses and any distribution made to the heir or to the beneficiary to
compute for the taxable net income and again

to compete for the tax due since again based on our um discussion earlier that the computation of your
tax you guys fornestate and trust will be computed as if it is an individual so therefore we will
also use the tax table to compute for the tax due of the estate of the or of the trust

okay i'd like to emphasize guys

that in the old tax code or in the nirc 1997 there is an additional exemption of 20000 that is given as

a deduction to compute for the taxable net income of the estate or or or of the trust but however

that 20 000 exemption was amended by train law therefore starting january 1 of 2018 your 20 000 basic
exemption is no longer applicable in computing for the taxable net income so that means deductions

that can only be deducted or that can be availed by the administrator of this trust or this estate is only
your business expenses and your distribution to heirs or beneficiary to compute for the taxable net
income okay

so there are times that there are several trusts within a common grantor and a common beneficiary
okay

so what is the rule to be followed when there are several trusts with a common grantor and a common
beneficiary so when in terms of filing of separate returns

a separate return will have to be filed for each trust by the respective trustee or fiduciary

so for example there is one grantor or one trustor pero different trustee or different fiduciary pero
common beneficiary

so when that happened guys when there are multiple trusts with a common grantor and with a
common beneficiary there should be a separate return that will be filed for each trust by the respective
trustee or fiduciary however in terms of the computation of income tax for that particular trusts an
income tax shall be computed on the consolidated income so that means in computing forthe taxable
income of that trust from a common grantor

all of the income from those three trusts or from those multiple trusts will be combined to compute for
the taxable income okay

apportionment of the consolidated income tax to the different trusts after computing the total tax due

of the combined taxable income from the different trust you simply apportion the total income tax due
to the different trust

using this formula for example

we have here taxable income of trust 1 over total taxable income of all trust times consolidated income
tax

to compute for the income tax due to be shared or to be paid by trust one okay

so in short the formula will be for example for trust one so in our illustration earlier we

assume that there are three trusts so taxable income of trust1 over taxable income of all trust of all the

three trusts times the consolidated income tax which has been computed with the combined taxable
income of the three trusts
okay and then the tax payable of each trust or each trust shall pay an income tax still due

as follows income tax abortion to the trust

minos income tax already paid by the fiduciary of the trust if ever there's any

if ever there are if ever there's already amount paid of tax per fiduciary or per trustee such will be
deducted to compute for the total income tax still due but of course if each trust each fiduciary of the
trust hasn't paid anything as a form of income tax due then that

means automatic whatever is the income tax aportion to every trust will be equal to its income tax

still due okay so later on we will use

these concepts

into illustrations okay

as mentioned earlier income tax of estate and trust will be computed as

if it is an individual so therefore the same tax table will be used in computing for the tax due that we
have used no in computing for the tax due of an individual

so it's the same tax table section 24a it's the revised

section 24a per r8963

so again same rule you just simply compute your taxable income and refer the taxable income on this

range of income with its respective tax rates andtax due okay we have here

illustrations first illustration

the estate of mr indiano has 800 000 gross income before expenses of

200 000 okay the estate administrator

distributed 300 000 to the heirs in

accordance with the will of mr indiano so upon the competition of our taxable

income

again we simply deduct these allowable expenses of 200 000 and this 300 000 which is distributed to the

years of mr indiano so therefore we have the

total deductions of 500 000 being deducted to our gross income of

800

that gives us a total taxable income of

300 000 so again guys the computition of the

taxable income
for an estate or for a trust is somehow

simple

compared with the other competition of

taxable income because in this case

we will only be considering two types

of deductions to compete for the taxable

income of an estate or trust

so again we simply deduct business expenses of 200 and distribution to the heirs worth 300 000 to our
total gross income of 800 000 so that means our taxable income is 300 000

so again using the tax table guys it belongs to the range of 250 to 400 000 so that means for the

first 250 000 its tax due will be zero in excess of

250 000 its tax rate will be 20 so therefore

we'll have 20 50 000 times 20

so the total tax due is 10 000. okay

so it's how simple the competition of

the

tax due for an estate or a trust

okay but i'd like to put an emphasis on

how are we going to compute gross income

guys gross income again just like

how we computed gross income in our previous discussions

gross income this is from um this is from your gross sales minus any sales adjustments less your cost of
goods sold plus your other income other operating and non-operating income so that will be

included in the competition of your

gross income okay so in this case

the administrator of mr indiano or the administrator of the estate of mr indiano

will pay 10 000 as income tax due of the estate

okay next illustration we have here

kevin
designated an irrevocable trust to a property in favor of j and appointed kj

as trustee so we have here three parties

the grantor the beneficiary and the fiduciary

so we have here kevin as our grantor or the trustor we have jay the beneficiary and we have

kj as trustee or the fiduciary

okay take note what is being

designated is irrevocable i'd like to put an emphasis also in this

guys that only a revocable trust are taxable okay when the trust

is considered as revokable that means the trustee or the trustworthy grantor

can still take that trust back

when it is revokable that means it when

it is revokable it is not subject to tax okay it will not be taxable if the trust designated is revocable i'd like
you to*take note of that

continuing the illustration the property

earned 1.5 million income before expenses of 200 000. and trust fees of 50 000 okay trust fees meaning

it is an expense related to the trust

in accordance with the trust indenture kj distributed two hundred thousand to j

so that means we have a total deduction of two hundred thousand as our expenses

plus fifty thousand

and one hundred thousand giving us a

total

allowable deductions of 350 000

to be deducted to our total gross income

of 1.5 million

thus giving us a total taxable income of 1 million 150 000 so using the tax table

it belongs to 800 000 to 2 million range so that means for the first 800 000 it will be subjected to 130
000 tax due in excess of 800 that will be subject to 30% tax rates so that means we have 350 000

times 30

so we have additional tax due of 105

giving us a total of 135 000 taxed due

okay who will pay for this one hundred

five two hundred thirty five thousand

who will pay for this tax due of two hundred thirty five thousand

the ones who will pay this two hundred thirty five thousand is the

trustee okay it's the trustee or the

fiduciary who will pay this income tax due to the bir using of course the amount or the money from

the income of the trust

okay another illustration guys what if

there are

multiple trust from a common grantor or common truster with a commonbeneficiary

okay for example don jose designated three trusts all in favor to his son joe so there

were three trusts that is being designated two were

irrevocable

and one is revocable so obviously guys

as what we have mentioned earlier

we have only irrevocable trust are subject to tax so that means we need to disregard trust

three since trust three is

revokable okay so it's aj

and trustee ah aj and bj

who were the trustee trustees of trust

one and two respectively

now for the purposes of taxation guys for the purposes of computing the taxable income

of the trust of this specific trust needless to say we need to combine all the taxable income

of trust1 and trust2 to compute for the combined taxable income which will be our basis

in computing for the total taxed due of

the trust

okay so in this case we have here combined operating income of 700 000 or combined

gross income of seven hundred thousand so that's from trust one and two of
three hundred

and four hundred thousand respectively

less allowable deductions

distributed to the years which is

thirty and forty thousand respectively

okay

as where did we get the thirty thousand

forty thousand let's go back with

our illustration earlier so we have

distributions of thirty to forty thousand okay so that means

that will be considered as a deduction

so we have here 70 000

total deductions allowed to be deducted

to our operating income of 700 000 so we have a taxable income of 630 000

so using the tax table again we compute the tax due

it belongs to um

[Music]

it belongs to where did it belongs

630 it belongs to 400 000 to 800 000

okay

for the first four hundred thousand it

is subject to thirty thousand

and exists we have two thirty times

twenty five percent we have fifty seven

thousand

five hundred so we have a total tax due

of eighty seven thousand five hundred

so again what's the rule 87500 will be the total amount that will be paid as tax due

but take note these 87 500 will be shared by both trust1 and trust2
okay so in short ej and bj will be

contributing an amount to satisfy this 87500 tax due but the question is how are

we going to

compute how are we going to compute for

how are we going to compute for the share so we simply compute by having

270 000

270 000 divide 630 which is the total

taxable income

so we have 270 coming from 300 minus 30

so we have um 270 divide 630

then multiply it by your total tax due of eight seven thousand five

hundred so that means

trust one will be sharing thirty seven

thousand five hundred

of these total eighty seven five hundred

and

trust two will also be sharing 50 000

out of that 87 500

okay so again as mentioned earlier

we have trust 3 which is not considered

as

which is considered as not taxable since it is revocable

the entire 500 000 of trust three including the 50 000 income distribution

will be included in the taxable income of don jose

okay so it is not subject to tax on the point of view of the trust but

your trust tree

since it is revocable it will be taxed

on the

on the okay it will be considered as

taxable income

on the point of view or on the income

tax return of don jose okay

again so that's the procedures

that we need to consider when there is actually multiple income from from common grantor

to a common beneficiary okay

before we end with our lecture for this

um

short topic in taxation for estate and trust let us consider first

important notes in terms of filing the returns and payment of tax

so who shall file the return okay who

shall file the return the following persons acting in any fiduciary capacity shall income the initial file the
income tax return for an estate or trust okay so it's either the guardian

the trustees, the executors,

administrators, receivers

conservators ,and all other persons or corporations acting as fiduciary

whoever acts as fidoshari for the estate

or the trust guys will be the one who

will pay

who will file the income tax return and at the same time

will pay the income tax due obviously

guys the income tax due will be coming from the income of the

estate and the trust not on the personal packet of whoever is the

fiduciary and then

gross income if the gross income is 50 000 or more

the return shall be filed if the estate

or trust has a gross income of 50 000 or more during the taxable year and then

when there are two or more fiduciaries as mentioned earlier

in case of two or more joint fiduciaries

returned return filed by one of them shall be sufficient compliance with the requirements of

the tax code so it's either one of the two fiduciaries or it's either one

or two

fiduciaries joint fiduciaries is already

or will suffice the compliance requirements of the tax code it's not necessary that for example you have

three um difuciaries

income tax return

it's either or it's one of them

okay any of them can file at least

at least meron isang i know fiduciary in a

mug file on behalf of the entire

trust okay so those are the necessary

important notes that we need to again

remember in in preparing for the income tax return for

st and trustees

again that's the end of our video

lecture

in computing for the taxable income

for an estate

or a trust if you have any more

clarifications

or questions regarding the topic you may

reserve that

and ask during our video lecture

video or not video lecture but virtual

class

during our virtual class or you can

comment down it below for

us to immediately answer that question

so again that's it for our video lecture

thank you very much for watching

and see you on our next video lecture

in taxation see you and god bless

thank you very much

you

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