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Exam 20: Income Taxation of Trusts and Estates

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Question 61

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Harry, the sole income beneficiary, received a $40,000 distribution from the Lucy Trust, in a year when the trust's distributable net income was $30,000. Harry's AGI can increase by as much as $40,000.

A) True
B) False

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Question 62

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A ____________________ (first, second, third) -tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary.

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Question 63

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An estate ____________________ (can/cannot) be liable for a Federal alternative minimum tax.

The Chen Trust incurred the following items during the year. $\begin{array}{lr}\text { Taxable interest received } & \$ 40,000 \\\text { Tax-exempt interest received } & 60,000 \\\text { Tax preparation fees paid } & 5,000\end{array}$ What is Chen's deduction for the tax preparation fees?

"First-tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee.

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust whose income can be distributed to beneficiaries and in amounts at the trustee's discretion.

The Gable Trust reports $20,000 business income and $10,000 exempt interest income, and it paid a $3,000 fiduciary fee. Gable's distributable net income includes $10,000 of net tax-exempt income.

The trustee of the Epsilon Trust distributed an asset to Telly, a qualifying income beneficiary. The asset's basis to the trust was $10,000, and its fair market value on the distribution date was $25,000. Which of the following statements is true?

Which of the following is a typical duty of a trustee?

Your client Pryce is one of the income beneficiaries of the Santiago Trust. Pryce says to you, "I want all of the exempt interest income from Santiago to be allocated to me, as I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

The Malik Estate operates a manufacturing business. Malik made no income distributions this year. It can claim a domestic production activities deduction (DPAD).

The Chen Trust is required to distribute its accounting income every year, one-half to Missy Chen, and one-half to the local church's homeless shelter. What is the Chen Trust's personal exemption?

The Griffin Trust makes a gift of long-term capital gain property to a qualifying charity. Griffin's entity-level deduction cannot exceed 30% of distributable net income.

Which of the following is a typical duty of an executor of an estate?

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.

Income beneficiary Turk received $30,000 from the Urgent Trust. Trust accounting income for the year was $100,000. The trust generated $20,000 in cost recovery deductions. How much can Turk deduct with respect to the cost recovery deductions that Urgent generated?

The Brighton Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee is required to distribute $25,000 to Roger and $50,000 to Sally. After payment of these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Brighton trustee distributes an additional $20,000 to Roger, and $30,000 to Sally. How much income from the trust must Sally recognize?

A fiduciary's distribution deduction shifts the tax burden for the distributed amount of current-year income from the entity to the beneficiary.

Which of the following is a typical duty of a trustee?

This year, the Huang Trust is a complex trust. This year, it distributed all of its accounting income and $5,000 from corpus, to its sole income beneficiary Kun. Huang's taxable income for the year is: