Exam 20: Income Taxation of Trusts and Estates

This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI). Nano distributed $30,000 cash to Horatio, its sole income beneficiary. Nano is a complex trust. Nano's distribution deduction is:

An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.

A grantor trust results when the donor of the entity's corpus retains "too much" control over the trust income and assets. Name at least three powers that can trigger grantor trust status.

A trust might be used by the parties to an impending divorce.

Which of the following restrictions applies concerning distributions to trust beneficiaries?

A fiduciary arrangement creates a separate tax and legal entity, but Subchapter J applies a modified ____________________ principle in deriving the Federal income tax liability for estates, trusts, and their beneficiaries. or

The decedent's estate must terminate within four years of the date of death.

The Roz Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee must distribute $30,000 to Roger and $30,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $10,000 to Roger and $30,000 to Sally. How much gross income from the trust must Sally recognize?

Peggy, a trustee, has learned that the Olsen Trust has been characterized as a "grantor trust." What are the tax consequences of this status?

The Leonardo Estate operates a business and generates cost recovery deductions. Which taxpayer(s), if any, can deduct these items, e.g., the deceased, the estate, the income or remainder beneficiaries?

When a trust operates a trade or business, it can claim a deduction for wages paid to employees.

The Yellow Trust incurred $10,000 of portfolio income. Its corporate trustee paid fiduciary fees of $1,000 therefrom, and also paid $1,000 in premiums for a life insurance policy on Marcia, the grantor of the trust. How much gross income does Marcia include with respect to these trust activities?

Harry, the sole income beneficiary, received a $40,000 distribution from the Lucy Trust, in a year when the trust's distributable net income was $50,000. Harry's AGI can increase by as much as $50,000.

The grantor set up a trust, income to a daughter, remainder to a grandson. To the extent that trust income is accumulated for a later distribution to the grandson, Subchapter J rules are ignored, and the income is taxed to the grantor.

The Raja Trust operates a welding business. Its current-year cost recovery deductions properly amount to $75,000. Raja's accounting income was $100,000, of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee. Ruby also received a $25,000 discretionary corpus distribution. Raja's DNI was $80,000. Identify the treatment of Raja's cost recovery deductions.

When a beneficiary receives a distribution from a trust of an asset other than cash, generally a(n) ____________________ basis is assigned to the asset.

It is ____________________ (rare, common, impossible) for a trust or estate to incur a liability for the alternative minimum tax.

The Yellow Trust incurred $10,000 of portfolio income. Its corporate trustee paid fiduciary fees of $1,000 therefrom. Yellow's accounting income is distributed as follows. · $5,000 to income beneficiary Larry · $4,000 to pay part of the high school tuition bills for Carrie, the daughter of Yellow's grantor Marcia How much gross income does Marcia include with respect to these trust activities?

____________________ is the maximum amount that can be included in the beneficiaries' gross incomes from the fiduciary for the year.

The Jain Estate is required to pay its entire annual accounting income to Sam and Janet. The estate's personal exemption is: