Exam 23: Estates and Trusts

In reference to estates,which of the following statements is correct?

You are serving as the trustee for the Paul Porter testamentary income trust.The trust was created by Paul's will.All of his assets were transferred to the trust to cover the living expenses of his wife,Paula.Upon her death,the assets are to be sold,with the proceeds distributed to his brother,Saul.If Saul is not alive when Paula passes,the proceeds are to go to the Porter Scholarship in Business Administration. The probate court has ruled that all personal effects and household items could be excluded from the estate.All taxes have been paid,and the following assets remain to be transferred to the trust: Asset Cost Fair Market Value Cash \ 160,000 \ 160,000 Certificates of deposit 75,000 75,000 ExTech Company common stock 22,000 216,000 Rentall common stock 42,000 40,000 Lake house (his share) 149,000 170,000 Personal residence (his share) 226,000 280,000 Antique sports car 35,000 46,000 Coin collection 7,000 12,000 Required: Prepare the journal entries for the creation of the trust.

To open the books to create a trust "Trust fund principal" would be a debit for the value of the trust.

Suzanne Quincy passed away on October 25,2014.Suzanne left behind a limited estate,so there are no tax issues to address,however,she owned a dog,Buddy,and Suzanne provided for Buddy in the will.Suzanne left $100,000 for Buddy's care,and the remainder of her estate was left to her neighbor,Agnes.Suzanne's estate had the following events and transactions in the month following her death. 1.Her assets were converted to cash at their fair value as inventoried: Mutual funds,$270,000; and Residence,$209,000.There were no other reportable assets. 2.Transferred $100,000 to a trust account at Second National Bank to provide care for Buddy,and delivered Buddy to Paws and Claws Pet Farm,his new home. 3.Wrote check to pay for funeral expenses for $9,600. 4.Wrote check to pay for executor fees as designated in the will of $1,000. 5.Wrote check to pay balance of estate to Agnes. Required: Prepare the journal entries for the listed transactions.Disregard the impact of estate and income taxes.

An estate is subject to federal tax on income earned from the date of death until final settlement of the estate.

In reference to estate principal and income,which of the following statements is correct?

Philiam Benedict dies on October 1,2014,leaving his entire estate to his sole surviving niece,Muriel Finster.After all devise distributions and payments for estate expenses and liabilities,the fair value of Philiam's estate is $6,350,000. Required: Calculate the federal estate tax on Philiam's estate,assuming that federal estate taxes are paid at the 45% rate.

Rusty Nail died in the summer of 2014.The following transactions occurred relating to Rusty's estate. 1.Rusty's estate included a $50,000 Certificate of Deposit.When Rusty died,there was $250 accrued but unpaid interest.When the check was received for the normal semiannual interest payment,it was in the amount of $1,250. 2.Rusty's will requested a specific transfer to the local playhouse in the amount of $20,000.Avery's estate should be adequate to cover all obligations and devises,and the amount is paid. 3.A fee for probate court is paid amounting to $1,400. 4.Funeral expenses are paid amounting to $13,000. 5.A bill is received from the anesthesiologist relating to Rusty's last hospital stay for $22,000.The bill is not covered by insurance,and was not included in the estate inventory.The bill is verified and paid. Required: Prepare the journal entries for the listed transactions.Disregard the impact of estate and income taxes.

The taxable amount of an estate is based on fair values of all estate assets at the date of death.

Oscar Lloyd is serving as the executor for the estate of Dixie Cooper,who passed away on January 28,2011,at the age of 98.Dixie's estate consisted of Treasury bonds with a maturity value and fair market value of $1,400,000,$4,000 in her checking account,and $50,000 in a Certificate of Deposit with First State Bank of Springfield.Total accrued interest at the time of death was $44,000,made up of $2,000 from the CD and $42,000 from the bonds. Dixie left a valid will,which provided that most of her estate would be inherited by her two nephews,Jimmy Johns and Joey Johns.In addition,Dixie provided that $200,000 be transferred to a trust account for her faithful cats,Petra and Hobbes.Income from the trust would be used to care for Hobbes and Petra.Upon their passing,the remaining funds would then transfer to Operation Kindness,an organization that cares for cats and dogs. Mr.Lloyd will also serve as the fiduciary for the trust.He has determined that no state or federal inheritance taxes are due.The limited estate income is also free from any federal or state income tax.The following transactions occurred during February. 1.On February 3,Oscar sold the treasury bonds for $1,460,000.$1,400,000 was for the fair market value of the bonds,$42,000 was for interest accrued to the time of Dixie's death,and the remaining $18,000 was for accrued interest since Dixie's death.Estate income will be used to pay final medical expenses,and if anything is left,funeral expenses. 2.On February 11,Oscar issued a check to pay Dixie's final medical expenses of $11,900. 3.On February 15,Oscar received a check in the amount of $52,000 from First State Bank of Springfield.It is the maturity value and interest from a certificate of deposit in the amount of $50,000.The CD matured on January 22,2011. 4.In Dixie's will,she wanted to give $150,000 to the American Humane Society.After examining the assets,Oscar determined that the estate's assets will adequately cover all expenses and specific devises,so on February 3,he issued a check to the organization for $150,000. 5.On February 18,Oscar transferred $200,000 to a trust account at First State Bank to fund the trust,to care for the cats. 6.On February 25,Oscar issued a check to pay Dixie's funeral expenses of $9,800. 7.On February 26,Oscar paid himself the $4,000 executor's fee specified in Dixie's will. 8.On February 28,Oscar finalized the estate and transferred the balance of the estate's assets equally between Dixie's nephews,Jimmy Johns and Joey Johns. Required: 1.Prepare an inventory of estate assets at the time of Dixie's death and record the necessary journal entries to create the estate. 2.Prepare journal entries to record the estate's transactions during February.

In accounting for interest income on bond investments included in the estate,bond premiums and discounts must be amoritized.

In reference to the Uniform Probate Code,which of the following statements is correct?

The executor or administrator of a will is required to prepare and file an inventory of property owned by the deceased within what time period?

Silvia Peacock has been appointed to serve as the executor of the estate of Mr.Mickey Babay,who passed away at the age of 104 on April 5,2011.On April 5,2011,Mr.Babay's assets consisted of the following: Asset Book Value Fair Value Cash \ 40,000 \ 40,000 Mutual fund investment 170,000 170,000 Selonoid Incorporated common stock 22,000 28,000 Ford Mustang 24,000 16,000 Condo in Phoenix, AZ 120,000 150,000 Residence in Boston, MA 150,000 280,000 Stamp collection 4,900 8,000 Salt and pepper shaker collection 1,500 4,000 Rare hand puppet collection 2,300 6,700 The probate court has ruled that any other personal effects may be excluded from Mr.Babay's estate inventory. Required: Prepare an inventory of estate assets on April 5,2011.

Within four months of appointment,the executor is required to prepare and file an inventory of property owned by the deceased.

Oscar Lloyd is serving as the executor for the estate of Dixie Cooper,who passed away on January 28,2014,at the age of 98.Dixie's estate consisted of Treasury bonds with a maturity value and fair market value of $1,400,000,$4,000 in her checking account,and $50,000 in a Certificate of Deposit with First State Bank of Springfield.Total accrued interest at the time of death was $44,000,made up of $2,000 from the CD and $42,000 from the bonds. Dixie left a valid will,which provided that most of her estate would be inherited by her two nephews,Jimmy Johns and Joey Johns.In addition,Dixie provided that $200,000 be transferred to a trust account for her faithful cats,Petra and Hobbes.Income from the trust would be used to care for Hobbes and Petra.Upon their passing,the remaining funds would then transfer to Operation Kindness,an organization that cares for cats and dogs. Mr.Lloyd will also serve as the fiduciary for the trust.He has determined that no state or federal inheritance taxes are due.The limited estate income is also free from any federal or state income tax.The following transactions occurred during February. 1.On February 3,Oscar sold the treasury bonds for $1,460,000.$1,400,000 was for the fair market value of the bonds,$42,000 was for interest accrued to the time of Dixie's death,and the remaining $18,000 was for accrued interest since Dixie's death.Estate income will be used to pay final medical expenses,and if anything is left,funeral expenses. 2.On February 11,Oscar issued a check to pay Dixie's final medical expenses of $11,900. 3.On February 15,Oscar received a check in the amount of $52,000 from First State Bank of Springfield.It is the maturity value and interest from a certificate of deposit in the amount of $50,000.The CD matured on January 22,2014. 4.In Dixie's will,she wanted to give $150,000 to the American Humane Society.After examining the assets,Oscar determined that the estate's assets will adequately cover all expenses and specific devises,so on February 3,he issued a check to the organization for $150,000. 5.On February 18,Oscar transferred $200,000 to a trust account at First State Bank to fund the trust,to care for the cats. 6.On February 25,Oscar issued a check to pay Dixie's funeral expenses of $9,800. 7.On February 26,Oscar paid himself the $4,000 executor's fee specified in Dixie's will. Assume that on February 28,2014,Oscar finalized the estate and transferred the balance of the estate assets to Dixie's nephews,Jimmy Johns and Joey Johns.Each received one-half of the residual estate. Required: 1.Prepare the closing entry on February 28,2014. 2.Prepare the charge-discharge statement for the estate of Dixie Cooper for the period January 28 through February 28,2014.

Mason Dixon dies on November 30,2014,leaving a valid will.The will reads as follows: "I leave my boat to my son,George.I leave my automobile to my daughter,Georgia.I leave the income on my estate to be divided equally between George and Georgia.Estate expenses are to be paid from principal,not estate income.All other property,I leave to a trust to care for my wife,Gladys.Any remaining property at the time of her death is to be transferred into a trust to pay college education expenses of my grandchildren until such time as it is used up.I name my wife,Gladys,as executrix of my estate." Gladys prepares an estate inventory for all assets discovered and files the appropriate notice to potential creditors on December 15. Cash \ 90,000 Investments 1,200,000 Interest Receivable 2,000 Life Insurance Receivable 500,000 Residence 180,000 Automobile 20,000 Boat Total A check for interest is received of $5,000,and estate liabilities (such as funeral expenses,administrative costs,and taxes)are settled for $20,000.The will is administered. Required: Prepare a charge-discharge statement for the estate of Mason Dixon on December 31,2014.Assume the life insurance proceeds have not been paid out.

Under the amended Uniform Probate Code,if the decedent dies intestate,and if there are descendants from a prior marriage or relationship,the surviving spouse receives what?

Receipts due but unpaid at the date of death are a part of the estate principal when accounting for a decedent's estate.

Which of the following is a gift of an object to a devise?