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

The Williams Trust was established six years ago.The trust document allows the trustee to distribute income in its discretion to beneficiaries Carol and Karen for the next 15 years.The trust will then be terminated and the trust assets will be divided equally between Carol and Karen.Capital gains are part of principal. The current year income and expenses of the trust are reported below. Compute (a)distributable net income (DNI),(b)distribution deduction,(c)trust taxable income,and (d)Carol's and Karen's reportable income and its classification.Charge all of the deductible expenses against the rental income.

Income in respect of a decedent (IRD)is included in the decedent's final income tax return.

What is the benefit of the 65-day rule?

Explain how to determine the deductible portion of trustee's fees.

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

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

The Tucker Trust was established six years ago.The trust is required to distribute all of the trust income at least annually to Betty for life.Capital gains are credited to principal.The current year results of the trust are as follows: Compute (a)distributable net income (DNI),(b)the distribution deduction,(c)trust taxable income,and (d)Betty's reportable income and its classification.Charge all of the deductible expenses against rent income.

A trust is required to distribute all of its income currently.Two years ago,it had a $10,000 capital loss.Last year,it had a $3,000 capital gain.This year,the trust is terminated.Albert has a 40% interest in the trust,and Barbara has a 60% interest.Barbara receives a capital loss pass-through of

Explain to a client the significance of the income and principal categorization scheme used for fiduciary accounting purposes.

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 trust has the following results: The Uniform Act is followed.The trust document requires one-fifth of the income to be distributed annually to David and the remainder of the income to Patty.What is distributable net income?

Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.How much of Steve's distribution is taxable?

A trust document does not define income or principal.The state in which the trust is operated has adopted the Uniform Act,including allocation of depreciation to income.The trust reports the following: What is the amount of the trust's net accounting income?

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

A trust has net accounting income of $15,000.In addition,the trust has a $10,000 capital gain,which is not included in net accounting income.The trust is required to distribute the trust income to the beneficiary.The beneficiary will receive

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

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?

Identify which of the following statements is true.

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