Question 1

Identify which of the following statements is true.

Accepted Answer

A) Income in respect of a decedent (IR
D) is the gross income the decedent earned before death but had not collected before death. 
B) An estate may deduct up to $5,000 of capital losses against the ordinary income taxable in the estate. 
C) An example of income in respect of a decedent (IR
D) is the gain recognized on property sold by the estate after the decedent's death. 
D) All of the above are false. 
A) Income in respect of a decedent (IR
D) is the gross income the decedent earned before death but had not collected before death. 
B) An estate may deduct up to $5,000 of capital losses against the ordinary income taxable in the estate. 
C) An example of income in respect of a decedent (IR
D) is the gain recognized on property sold by the estate after the decedent's death. 
D) All of the above are false. A

Question 2

For purposes of trust administration,the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.

Accepted Answer

A) True 
 B)False  False

Question 3

Fred,a cash-basis taxpayer,died on January 15,2018.In 2019,the estate made a $9,000 distribution from estate income to Fred's sole heir.The estate had $20,000 of taxable interest and a $10,000 net long-term capital gain allocable to corpus.The estate incurred $5,000 in expenses attributable to the estate income.What is the estate's distributable net income (DNI)?

Accepted Answer

A) $15,000 
B) $20,000 
C) $25,000 
D) $30,000 
A) $15,000 
B) $20,000 
C) $25,000 
D) $30,000 A

Question 4

Which of the following is not an addition to trust taxable income when computing distributable net income (DNI)?

Accepted Answer

A) distribution deduction 
B) capital gains allocated to principal 
C) tax-exempt interest 
D) personal exemption 
A) distribution deduction 
B) capital gains allocated to principal 
C) tax-exempt interest 
D) personal exemption

Question 5

Income in respect of a decedent (IRD)includes interest earned by a cash-basis taxpayer but not received by the taxpayer before death.

Accepted Answer

A) True 
 B)False

Question 6

Revocable trusts means

Accepted Answer

A) the transferor may not demand the assets be returned. 
B) income or estate tax savings for the grantor. 
C) the trust can be revoked. 
D) the grantor is always the beneficiary. 
A) the transferor may not demand the assets be returned. 
B) income or estate tax savings for the grantor. 
C) the trust can be revoked. 
D) the grantor is always the beneficiary.

Question 7

Which of the following statements regarding the taxation of a trust is incorrect?

Accepted Answer

A) An irrevocable trust's income is taxed to the grantor. 
B) Trusts are generally not taxed at favorable rates for income shifting. 
C) Trusts are not subject to double taxation. 
D) A trust's long-term capital gains are taxed at a top rate of 15%. 
A) An irrevocable trust's income is taxed to the grantor. 
B) Trusts are generally not taxed at favorable rates for income shifting. 
C) Trusts are not subject to double taxation. 
D) A trust's long-term capital gains are taxed at a top rate of 15%.

Question 8

Trusts are required to make estimated tax payments.

Accepted Answer

A) True 
 B)False

Question 9

The exemption amount for an estate is

Accepted Answer

A) $0. 
B) $100. 
C) $300. 
D) $600. 
A) $0. 
B) $100. 
C) $300. 
D) $600.

Question 10

Sally transfers property to a revocable trust.Under the terms of the trust agreement,Allison is to receive income for ten years at which time the remainder is to go to Tom.During the year,the trust earns $10,000 in corporate bond interest income and recognizes a capital gain of $20,000.The interest is distributed to Allison and the capital gain is properly allocated to principal.Allison (not Sally)will pay tax on

Accepted Answer

A) $0. 
B) $10,000. 
C) $20,000. 
D) $30,000. 
A) $0. 
B) $10,000. 
C) $20,000. 
D) $30,000.

Question 11

A trust is required to distribute all of its income annually.It distributes all of the income and $2,000 of principal to the beneficiary.Which of the following statements is correct?

Accepted Answer

A) The trust is a complex trust and is allowed a $300 exemption. 
B) The trust is a complex trust and is allowed a $100 exemption. 
C) The trust is a simple trust and is allowed a $300 exemption. 
D) The trust is a simple trust and is allowed a $100 exemption. 
A) The trust is a complex trust and is allowed a $300 exemption. 
B) The trust is a complex trust and is allowed a $100 exemption. 
C) The trust is a simple trust and is allowed a $300 exemption. 
D) The trust is a simple trust and is allowed a $100 exemption.

Question 12

A trust has net accounting income of $30,000,but distributable net income (DNI)of only $25,000 because certain expenses are charged to principal.The trust is required to distribute $10,000 to Alice and it makes a discretionary distribution of $20,000 to Ben.The trust has no tax-exempt income.The amount that Ben reports as gross income is

Accepted Answer

A) $20,000. 
B) $16,667. 
C) $15,000. 
D) none of the above 
A) $20,000. 
B) $16,667. 
C) $15,000. 
D) none of the above

Question 13

Grantor trusts are taxed as complex trusts.

Accepted Answer

A) True 
 B)False

Question 14

A trust receives no standard deduction when computing taxable income.

Accepted Answer

A) True 
 B)False

Question 15

Apple Trust reports net accounting income of $40,000,all from taxable sources.The trustee is required to distribute $15,000 annually to Megan.The trustee also makes discretionary distributions of $30,000,$7,500 to Megan and $22,500 to Caroline.The trust pays $5,000 of the discretionary distributions from corpus.What is the amount of the distribution deduction?

Accepted Answer

A) $40,000 
B) $45,000 
C) $15,000 
D) $30,000 
A) $40,000 
B) $45,000 
C) $15,000 
D) $30,000

Question 16

Identify which of the following statements is true.

Accepted Answer

A) Tax-exempt income is allocated among beneficiaries in the proportion that total tax-exempt income bears to total distributable net income (DNI). 
B) Both income required to be distributed currently and discretionary income distributions are included in tier-1 distributions. 
C) Under the tier system,tier-2 beneficiaries are the first to absorb income. 
D) All of the above are false. 
A) Tax-exempt income is allocated among beneficiaries in the proportion that total tax-exempt income bears to total distributable net income (DNI). 
B) Both income required to be distributed currently and discretionary income distributions are included in tier-1 distributions. 
C) Under the tier system,tier-2 beneficiaries are the first to absorb income. 
D) All of the above are false.

Question 17

If a state has adopted the Revised Uniform Principal and Income Act,which of the following statements is correct?

Accepted Answer

A) The state law definition of trust income will preempt any other definitions. 
B) The definition of trust income in the trust document will preempt all other definitions. 
C) Under state law,tax-exempt interest will not be allocated to income. 
D) The definition of principal in the trust document must classify capital gains as principal. 
A) The state law definition of trust income will preempt any other definitions. 
B) The definition of trust income in the trust document will preempt all other definitions. 
C) Under state law,tax-exempt interest will not be allocated to income. 
D) The definition of principal in the trust document must classify capital gains as principal.

Question 18

Identify which of the following statements is true.

Accepted Answer

A) Beneficiaries of simple trusts are taxed currently on their pro rata share of taxable distributable net income (DNI)regardless of the actual amount distributed to them during the period. 
B) The income received by the beneficiaries of the trust loses its character once it is distributed. 
C) Capital losses remaining in the final year of a trust do not pass through to the beneficiaries succeeding to the trust property. 
D) All of the above are false. 
A) Beneficiaries of simple trusts are taxed currently on their pro rata share of taxable distributable net income (DNI)regardless of the actual amount distributed to them during the period. 
B) The income received by the beneficiaries of the trust loses its character once it is distributed. 
C) Capital losses remaining in the final year of a trust do not pass through to the beneficiaries succeeding to the trust property. 
D) All of the above are false.

Question 19

A simple trust has a distributable net income (DNI)of $50,000 and net accounting income of $60,000,all from taxable sources.The trust has a sole beneficiary,Marty.The trust reports on a calendar tax year and distributes the $60,000 of 2018's net accounting income to Marty on January 20,2019.No other distributions are made in the current year.Marty's taxable income from the trust this year is

Accepted Answer

A) $0. 
B) $49,700. 
C) $50,000. 
D) $60,000. 
A) $0. 
B) $49,700. 
C) $50,000. 
D) $60,000.

Question 20

Martha died and by her will,specifically bequeathed,and the executor distributed,$20,000 cash and a $70,000 house to Harold.The distributions were made in a year in which the estate had $65,000 of DNI,all from taxable sources.The maximum Harold will be required to report as gross income as a result of these distributions is

Accepted Answer

A) $0. 
B) $20,000. 
C) $65,000. 
D) $70,000. 
A) $0. 
B) $20,000. 
C) $65,000. 
D) $70,000.

Exam 14: Income Taxation of Trusts and Estates

Identify which of the following statements is true.

For purposes of trust administration,the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.

Which of the following is not an addition to trust taxable income when computing distributable net income (DNI)?

Income in respect of a decedent (IRD)includes interest earned by a cash-basis taxpayer but not received by the taxpayer before death.

Revocable trusts means

Which of the following statements regarding the taxation of a trust is incorrect?

Trusts are required to make estimated tax payments.

The exemption amount for an estate is

A trust is required to distribute all of its income annually.It distributes all of the income and $2,000 of principal to the beneficiary.Which of the following statements is correct?

Grantor trusts are taxed as complex trusts.

A trust receives no standard deduction when computing taxable income.

Identify which of the following statements is true.

If a state has adopted the Revised Uniform Principal and Income Act,which of the following statements is correct?

Identify which of the following statements is true.

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