Exam 28: Income Taxation of Trusts and Estates

Subchapter J applies a modified ____________________ principle in deriving the tax liability for estates,trusts,and their beneficiaries.

Which of the following taxpayers use a Schedule K and K-1 to pass through income,loss,and credit amounts to the owners or beneficiaries?

In the year in which an estate terminates,its beneficiaries receive and can use as their own any unexpired NOL carryforwards proportionately to the corpus assets that they received.

The decedent's estate must terminate by the third anniversary 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 Roger recognize?

To reduce trustee commissions,the Emily Trust is operated as though it were two trusts (i.e. ,with 70-year-old Grandma and 7-year old Skippy each holding equal shares).This year the trust generated distributable net income (DNI)of $80,000.The trustee distributed $90,000 to Grandma this year: $40,000 as her one-half share of the entity's income,and $50,000 as a distribution of principal.How much of the year's distributable net income is assigned to Grandma?

Summarize the Federal income tax filing requirements that apply to an estate or trust.

When a trust distributes an in-kind asset with a realized loss,most likely this loss should be allocated to and immediately deducted by the first-tier beneficiaries.

With respect to a trust,the terms creator,donor,and grantor are synonyms.

The LMN Trust is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie,Lynn,Mark,and Norelle)are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year,the trust has ordinary business income of $30,000,a long-term capital gain of $20,000 (allocable to corpus),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Figure 28.3 in the text to address the following items.

The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income is computed net of the full $3,000 deduction for the fees.

The Purple Trust incurred the following items this year. Compute Purple's tentative minimum tax for the year.Purple does not have any credits available to reduce the AMT liability.

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 is required to distribute $30,000 to Roger and $60,000 to Sally.After payment of these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $40,000 to Roger,and $40,000 to Sally.How much income from the trust must Sally recognize?

The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

Describe how an estate or trust treats "income in respect of a decedent."

The Roz Trust has distributable net income (DNI)for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument,the trustee must distribute $80,000 to Roger and $80,000 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 $20,000 to Roger and $20,000 to Sally.How much gross income from the trust must Roger recognize?

Generally,capital gains are allocated to fiduciary corpus,because they relate to investment assets.

A complex trust can claim a Year 1 deduction for a gift to charity,where the contribution was made in October of Year 2 out of gross income recognized in Year 1.

The Cooper Trust is required to distribute $80,000 annually,split equally between its two income beneficiaries,Amber and Byron.If trust income is not sufficient to pay these amounts,the trustee can invade corpus to the extent necessary.During the current year,the trust has DNI of $50,000.Byron receives an additional $20,000 discretionary corpus distribution.

Once the distributable net income (DNI)of a trust or estate is known,how does the entity compute its deduction for distributions to beneficiaries?