Exam 14: Income Taxation of Trusts and Estates

Identify which of the following statements is false.

A complex trust permits accumulation of current income,provides for charitable contributions,or distributes principal during the taxable year.

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?

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

For the first five months of its existence (August through December 2008),the Estate of Christine Lowry had gross income (net of expenses)of $7,000 per month.For January through July 2009,the executor estimates that the estate will have gross income (net of expenses)totaling $5,000.The estate's sole beneficiary is Christine's son,Jonathan,who is a calendar-year taxpayer.Jonathan incurred a large NOL from his sole proprietorship years ago,and $34,000 of the NOL carryover remains but expires at the end of 2008.During 2008,Jonathan received only $5,000 of income from part-time employment.What tax issues should the executor of Christine's estate consider with respect to the reporting of the estate's income?

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

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?

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

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

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?

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

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 personal exemption available to a trust is adjusted annually based on changes in the consumer price index.

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

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

Identify which of the following statements is true.

Ed Camby sold an apartment building in May 2008 for a small amount of cash and a note payable over five years.Principal and interest payments are due annually on the note in April of 2009 through 2013.Ed died in August 2008.He willed all his assets to his daughter Anna.Ed's gross estate is about $3 million,and his estate tax deductions are very small.What tax issues should the executor of his estate consider with respect to reporting the sale of the building and the collection of the installments?

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

Distributable net income (DNI)does not include capital gains allocated to principal.

A trust receives no standard deduction when computing taxable income.