Exam 14: Income Taxation of Trusts and Estates

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?

Mary died this year. Her will creates a trust for the benefit of her children. A portion of the estate's assets are placed in this trust. The estate has income from assets it will transfer to other beneficiaries at a later date. Mary's brother Joe is the trustee of the trust and executor of the estate. Which of the following statements is true?

Melody Trust has $60,000 of DNI for the current year, $20,000 of rental income and $40,000 of corporate bond interest. The trust instrument requires the trustee to distribute 30% of the trust income to Lee and 70% to Sarah, annually. The trust instrument does not require an allocation of the different types of income to the two beneficiaries. What is the amount and composition of the income reported by Lee and Sarah, respectively?

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 taxable amount of the Megan's tier-2 distribution?

Karly created a $300,000 trust that provided her mother with a lifetime income interest starting on January 1, with the remainder to go to her son. Karly expressly retained the power to revoke both the income and remainder interests at any time. Who will be taxed on the trust's income?

The governing instrument for the Lopez Trust contains no definitions of income and principal. The Trust is located in a state that has adopted the Uniform Act. In the current year, the trust reports the following receipts and disbursements: What is the trust's net accounting income?

A tax entity, often called a fiduciary, includes all of the following except

The term "trust income" when not preceded by an explanatory word relates most closely to

The executor or administrator is responsible for all the following estate duties except

Grantor trusts are taxed as complex trusts.

Trusts are required to make estimated tax payments.

The $3,000 limitation on deducting net capital losses does not apply to a trust.

Explain the three functions of distributable net income (DNI).

A trust that is required to distribute all of its income annually receives a exemption for the year of

A simple trust

Administration expenses incurred by an estate

Ebony Trust was established two years ago with Brent as the beneficiary. The trust instrument instructed the trustee last year to make discretionary distributions of income to Brent. Beginning in two years, the trustee is instructed to pay all of the trust income earned that year to Brent. What was the trust's personal exemption last year? What will the personal exemption be in two years?

Distributable net income (DNI)is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust.

An example of income in respect to a decedent (IRD)for a cash method of accounting taxpayer is

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