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Income Taxes

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You will not find much about personal and corporate income taxation here, except where the income taxes are on property distributed from an IRA or Retirement Plan, or where the income tax on a trust is taxed to the trust Maker/Settlor/Grantor because of the "grantor trust" rules.


I hope you will find some very useful articles on fiduciary income taxation, i.e., the arcane rules governing the income taxation of trusts and estates.

2013 – Estate Planning After the 2013 ATRA TBCA

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2012 – The Minimum Distribution Rules Affecting IRAs and Qualified Plans

(QSPs) in a Nutshell

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This is the latest iteration of a memo designed for clients who want to understand how the minimum required distribution (MRD or RMD) rules work under IRC 401(a)(9). It was last prepared for a State Bar of Texas Professional Development Seminar "Advanced Estate Planning Strategies" course held in April of 2012 in Santa Fe, NM, where I was a panelist with Prof. Thomas Featherston, Alvin Goldin and Stephanie Donoho. The subject of the panel was community property and so this version of the Memo has an article added that discusses community property laws as applied to IRAs and other retirement benefits, and which discusses in particular problems planners face when they seek to fund a bypass trust with a community property IRA. A possible solution to this thorny problem is proffered and discussed.

2008 – Grantor Trusts Including GRATS

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Long, long ago (when I began practicing law), trusts were taxed at rates more favorable than that of individuals. It was all the rage to set up trusts to save on income taxes. Following a common pattern, legislation was enacted that ignored certain trusts (called "grantor trusts') for income tax purposes. The IRS used its regulatory authority to keep trusts from being taxed separately by liberally interpreting the statute. Then things changed. Now trusts are taxed at higher rates than individuals, at least at lower income levels. So, creative tax practitioners began to deliberately make trusts subject to the grantor trust rules. Further, it was discovered that a gift to an irrevocable trust could be made complete for gift tax purposes, and yet still be subject to the grantor trust rules, which meant that the grantor paid the trusts income taxes. Is the payment of the trusts income taxes a taxable gift to the trust? Apparently not. Thus was born the IDIGIT, the intentionally defective grantor trust.

2007 – Valuation For Funding and Distribution Purposes

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When an in-kind distribution is made in satisfaction of pecuniary gift (a gift of a dollar amount), or if a non prorata distribution is made of a percentage interest in the residue of an estate, there will be questions about how to value the property distributed, and what to do about appreciation and depreciation between the time the trust was funded or the date of death of a decedent and the date of distribtuion. Actually this subject is every bit as important as it is arcane. It is both. .Usually, the fiduciary (executor or trustee) will have to eithe pay interest on a pecuniary gift (determined how?) or allow the gift to share in appreciation or depreciation. Obvious questions that the fiduciary must address include, whether or not gain or loss is recognized by the estate or trust on the distribution, whether the estate or trust can get a deduction or interest paid, whether the legatee is taxed on the distribution, etc. Until you read the Will or Trust and consult state law on the subject you won't know the answers to any of these questions. This article should be of some help in understanding the issues.

2007 – Paying Debts Allowances and Taxes and Satisfying Gifts Under The Will:

A Guide To The Independent Executor

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Guide to the Personal Representative (PR) (or executor) on Paying Debts, Expenses & Taxes Existing at Death and During the Period of Administration.

2003 – Drafting Wills and Trusts from an Income Tax Perspective A Panoply of Forms

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This article contains what I consider to be a rather sophisticated discussion of some important, if abstruse, rules governing the income taxation of estates and trusts.

Board Certified: Estate Planning & Probate Law by

the Texas Board of Legal Specialization since 1983

These materials are not meant to and may not be relied upon, but are published for discussion purposes only.  Rule 7.04(b) disclosures.

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