Proposed Tax Reform Regulations: Application of Section 199A to Estates, Trusts, and Beneficiaries

A trust can be considered in some cases as owned by the grantor, or creator, of the trust and the grantor would calculate qualified business income (QBI) for purposes of the new IRS Code Section 199A as if the QBI had been received directly by the grantor. When it is not considered a grantor trust, the deduction is calculated differently.

Section 199A provides a deduction of up to 20% of income from a pass-through entity. This deduction can be taken by certain individuals, and by some estates and trusts. It is beneficial to understand how trusts and estates are taxed, and the definition of certain terms, particularly distributable net income (DNI), income, and beneficiary.

• Distributable Net Income (DNI) – The taxable income of the estate calculated with no deduction for personal exemptions or distributions, excluding gains from the sale of capital assets, and adding back tax-exempt income
  
• Income – The amount of income for the estate or trust as defined by the applicable governing instrument and state law. In Iowa, this is determined under Iowa Code 637, the Uniform Principal and Income Act. This is commonly thought of as accounting income
• Beneficiary – Any individual or entity receiving assets from the trust or estate, whether the assets are received pursuant to the trust instrument or by operation of law. In other words: heir, legatee, and devisee

More information about an overview of Section 199A can be found here.

See Jana Luttenegger Weiler, Proposed Tax Reform Regulations: Application of Section 199A to Estates, Trusts, and Beneficiaries, Davis Brown Law, August 23, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.