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Exam 28: Income Taxation of Trusts and Estates

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Question 1

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For each of the following independent statements, choose the best answer. a. Tax attribute of complex trusts only b. Tax attribute of estates only c. Tax attribute of estates and complex trusts d. Tax attribute of neither estates nor complex trusts -The entity can choose between the cash and accrual methods of reporting its income and deductions.

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Question 2

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The trustee of the Miguel Trust can distribute any amount of accounting income and corpus to the trust's income beneficiaries, Paula and George. This year, the trust incurred the following. The trustee distributed $40,000 to Paula and $40,000 to George. a. What is Miguel's trust accounting income? b. What is Miguel's DNI? c. What is Miguel's taxable income? d. How much gross income is recognized by each of the beneficiaries?

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Question 3

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Corpus, principal, and assets of the trust are synonyms.

Sixty percent of the income received by the Atom Trust this year constituted municipal bond interest. Atom's trustee also made a $100,000 gift to the United Fund, a qualifying charity. The charitable deduction associated with this gift is limited to $60,000.

Identify the parties that are present when an estate is created, and their key duties. Then do the same for a trust.

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

The present value of a trust's Federal income tax liability is reduced when:

The Uldis Trust reports 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 must distribute $75,000 to Roger and $75,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Uldis trustee distributes an additional $10,000 to Roger and $30,000 to Sally. How much gross 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.

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. Complex b. Decedent c. Executor d. Grantor e. Administrator f. Reversionary g. Simple h. Sprinkling i. Trustee -A synonym for executor.

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?

This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) . Nano distributed $60,000 cash to Horatio, its sole income beneficiary. Nano is a simple trust. Nano's distribution deduction is:

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.

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.

The Raja Trust operates a welding business. Its current-year cost recovery deductions properly amount to $75,000. Raja's accounting income was $100,000, of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee. Ruby also received a $25,000 discretionary corpus distribution. Raja's DNI was $80,000. Identify the treatment of Raja's cost recovery deductions.

The Malik Estate operates a manufacturing business. Malik made no income distributions this year. It can claim the full deduction for the MACRS depreciation of the assets of the business.

Three weeks after Abed died, his brother Tony properly received Abed's last paycheck from his employer. The gross amount of the check was $4,000, and a $300 deduction for state income taxes was subtracted in computing the net amount of the payment. Which of the following statements is true?

A trust holds assets that will generate net investment income (NII) and trigger the additional Medicare taxes. The trustee should:

Beneficiary information concerning a trust's income and distributions are conveyed on Schedule____________________ of the Form 1041.

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