Exam 17: Trusts

Correct Answer:

Verified

Select from the following:
• tax cost
• market values
• spousal trusts
• non-spousal trusts
• depreciable properties
• exempt properties
• beneficiaries
$\begin{array}{|l|l|}\hline \text { A. } & \begin{array}{l}\text { Specific properties of the trust are deemed to be sold and reacquired at their } \\\underline{\text {market values}},\text { realizing tax gains and losses on the deemed disposition. }\end{array} \\\hline \text { B. } & \begin{array}{l}\text { Capital properties (non-depreciable), land that is inventory, resource property, } \\\text { and } \underline{\text { depreciable properties }}\text { are deemed to have been disposed of on a trust's } 21 \text { st }\\\text { anniversary date. } \end{array} \\\hline \text { C. } & \begin{array}{l}\text { Properties can be transferred to the beneficiaries prior to the } 21^{\text {st }} \text { anniversary, at } \\\text { their }\underline{\text { tax cost}},\text { thereby deferring the tax effects. } \end{array} \\ \hline \text { D. } & \underline{\text { Spousal trusts }}\text { (is/are) exempt from realizing a deemed disposition of the } \\ &\text { properties at the first } 21 \text { Year anniversary. }\\\hline\end{array}$

Correct Answer:

Verified

A.
Alex's estate will have a taxable capital gain of $\$ 50,000$ and recapture of $\$ 20,000$ upor the disposal of the building bequeathed to Lane
$\begin{array}{|l|r|}\hline \text { Proceeds (FMV) } & \$ 300,000 \\\hline \text { ACB } & 200,000 \\\hline \text { Capital gain } & \$ 100,000 \\\hline \text { Taxable capital gain } & \$ 50,000 \\\hline \text { Recapture: } \\\hline \text { UCC } & \$ 180,000\\ \hline \text { Lower of cost or proceeds } & -200,000\\\hline \text { Recapture }& -\$ 20,000\\\hline \end{array}$ B.There will be no tax consequence on the $80,000 cash received by Alex's wife.
The other assets will be transferred to the testamentary spousal trust at their tax values, resulting in no immediate tax effects.