Question 1

The conduit approach for fiduciary income tax means

Accepted Answer

A) the distributed income has the same character in the hands of the beneficiary as it has to the trust. 
B) the distributed income goes to all beneficiaries proportionately. 
C) the distributed income is determined by the trustee annually. 
D) the distributed income of a remainder interest is determined by the property. 
A) the distributed income has the same character in the hands of the beneficiary as it has to the trust. 
B) the distributed income goes to all beneficiaries proportionately. 
C) the distributed income is determined by the trustee annually. 
D) the distributed income of a remainder interest is determined by the property. A

Question 2

Identify which of the following statements is false.

Accepted Answer

A) Federal estate taxes related to income in respect of a decedent (IR
D) is deductible by the estate in the year the IRD is includible in the estate's gross income. 
B) An example of deductions in respect of a decedent (DR
D) are property taxes that accrued prior to the decedent's death but were not paid until after death. 
C) Items of IRD receive a step-up in basis as a result of the decedent's death. 
D) Interest earned but not received before death is IRD. 
A) Federal estate taxes related to income in respect of a decedent (IR
D) is deductible by the estate in the year the IRD is includible in the estate's gross income. 
B) An example of deductions in respect of a decedent (DR
D) are property taxes that accrued prior to the decedent's death but were not paid until after death. 
C) Items of IRD receive a step-up in basis as a result of the decedent's death. 
D) Interest earned but not received before death is IRD. C

Question 3

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 2008's net accounting income to Marty on January 20,2009.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. C

Question 4

Estates and trusts

Accepted Answer

A) are taxed on state and municipal bond interest. 
B) are not taxed on capital gains. 
C) receive a deduction for administrative expenses not otherwise deducted on the estate tax return (Form 706). 
D) receive a $1,000 personal exemption. 
A) are taxed on state and municipal bond interest. 
B) are not taxed on capital gains. 
C) receive a deduction for administrative expenses not otherwise deducted on the estate tax return (Form 706). 
D) receive a $1,000 personal exemption.

Question 5

The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income,reduced by net tax-exempt income.

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

$10,000 - $500 - $200 = $9,300

Question 7

List some common examples of principal and income items.

Accepted Answer

A common example of principal

Question 8

Which of the following is the most accurate statement concerning the use of trusts in tax planning?

Accepted Answer

A) The grantor trust rules allow grantors to shift income into trusts and reduce their own taxes. 
B) Nontax reasons for the use of trusts (such as avoidance of probate)typically outweigh tax reasons for creating trusts today. 
C) The large 15% tax bracket available to trusts allows complex trusts to be used as an income-shifting device. 
D) None of the above statements are correct. 
A) The grantor trust rules allow grantors to shift income into trusts and reduce their own taxes. 
B) Nontax reasons for the use of trusts (such as avoidance of probate)typically outweigh tax reasons for creating trusts today. 
C) The large 15% tax bracket available to trusts allows complex trusts to be used as an income-shifting device. 
D) None of the above statements are correct.

Question 9

A trust document does not mention the treatment for depreciation.The state has adopted the Uniform Act.The trust document states that depreciation is a charge against corpus.The trust results are the following:
   Calculate net accounting income.

Accepted Answer

$2,000 + $

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Briefly discuss some of the reasons for using a revocable trust.

Accepted Answer

The grantor may wish to have his propert

Question 12

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?

Accepted Answer

A) Karly's mother 
B) Karly's son 
C) Karly 
D) the trust 
A) Karly's mother 
B) Karly's son 
C) Karly 
D) the trust

Question 13

A trust has net accounting income and distributable net income (DNI)of $60,000,all from taxable sources.The trustee is required to distribute $40,000 of current income to Harry.In addition,the trustee makes a discretionary distribution to Harry of $10,000 and a discretionary distribution to Susan of $30,000.$20,000 of the $40,000 total discretionary distributions is from corpus.Gross income reportable by Harry is

Accepted Answer

A) $50,000. 
B) $45,000. 
C) $37,500. 
D) $30,000. 
A) $50,000. 
B) $45,000. 
C) $37,500. 
D) $30,000.

Question 14

Joyce passed away on January 3 while on an extended holiday cruise celebrating a very successful,and most profitable previous year.Joyce was the chief executive officer of the Quillip Corporation.After the independent audit of Quillip's last year's financial statements was completed in February of this year,Joyce's estate received a $1,000,000 bonus check resulting from last year's corporate profits.Joyce's estate also sold Quillip stock for $500,000 in February of this year.Joyce originally purchased this stock eight years ago for $10,000.The stock was valued at $495,000 on her date of death.Solely based on the above facts,how much income in respect of a decedent should Joyce's estate report in the current year?

Accepted Answer

A) $1,485,000 
B) $1,000,000 
C) $485,000 
D) $5,000 
A) $1,485,000 
B) $1,000,000 
C) $485,000 
D) $5,000

Question 15

What is the basis of inherited IRD items to the beneficiary?

Accepted Answer

If an item is consid

Question 16

An inter vivos trust may be created by all of the following except

Accepted Answer

A) a grantor. 
B) a trustor. 
C) an executor. 
D) a transferor. 
A) a grantor. 
B) a trustor. 
C) an executor. 
D) a transferor.

Question 17

Identify which of the following statements is true.

Accepted Answer

A) In a complex trust,distributable net income (DNI)does not act as a ceiling on the amount of the distribution deduction. 
B) Distributable net income (DNI)is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust. 
C) In a complex trust,distributable net income (DNI)is not reduced by the charitable contribution deduction when comparing DNI with the mandatory distributions in order to determine the amount of the distribution deduction. 
D) All of the above are false. 
A) In a complex trust,distributable net income (DNI)does not act as a ceiling on the amount of the distribution deduction. 
B) Distributable net income (DNI)is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust. 
C) In a complex trust,distributable net income (DNI)is not reduced by the charitable contribution deduction when comparing DNI with the mandatory distributions in order to determine the amount of the distribution deduction. 
D) All of the above are false.

Question 18

Little Trust,whose trust instrument is silent with respect to depreciation,collects rental income of $20,000 and pays property taxes of $1,000.Depreciation expense is $5,000.
Little Trust is in a state where all depreciation is charged to principal.What is the trust's net accounting income?

Accepted Answer

$20,000 -

Question 19

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 20

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.

Exam 14: Income Taxation of Trusts and Estates

The conduit approach for fiduciary income tax means

Identify which of the following statements is false.

Estates and trusts

The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income,reduced by net tax-exempt 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?

List some common examples of principal and income items.

Which of the following is the most accurate statement concerning the use of trusts in tax planning?

A trust document does not mention the treatment for depreciation.The state has adopted the Uniform Act.The trust document states that depreciation is a charge against corpus.The trust results are the following: Calculate net accounting income.

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

Briefly discuss some of the reasons for using a revocable trust.

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?

What is the basis of inherited IRD items to the beneficiary?

An inter vivos trust may be created by all of the following except

Identify which of the following statements is true.

Little Trust,whose trust instrument is silent with respect to depreciation,collects rental income of $20,000 and pays property taxes of $1,000.Depreciation expense is $5,000. Little Trust is in a state where all depreciation is charged to principal.What is the trust's net accounting income?

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

The exemption amount for an estate is

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