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COMM 545

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Class notes

September 28th 2006 - "The Tax Formula (for individuals)"

Slide 57 - Trusts

Two kinds of trusts:

  • Inter vivos - trusts between the living.
  • Testamentary trust - trust that is created under the terms of the decedents will. **For example, someone can will their property to a trust, which will redirect all of the trust's income to the wife until she dies. The property will then be redirected to the decedents children after she dies.

Trusts are taxed! Know how they're taxed and how income from the trust's assets are taxed. Testamentary trusts receive a "step up" in basis - since the trust receives a gift once you die.

Grantor trusts: Trusts where the grantor retains some sort of power over the property. The income from the trust is taxed back to the grantor, even though the income is paid to someone else.

Slide 64 - Employee Stock Options

Nonqualified stock options: You don't recognize any income when you receive the option, only when you exercise the option.

Qualified stock options: You don't recognize any income when you receive the option or when you exercise the option. You only recognize long-term capital gain when you sell the stock.

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