Question 1

If a state has adopted the Revised Uniform Principal and Income Act, which of the following statements is correct?

Accepted Answer

A)  The state law definition of trust income will preempt any other definitions. 
B)  The definition of trust income in the trust document will preempt all other definitions. 
C)  Under state law, tax-exempt interest will not be allocated to income. 
D)  The definition of principal in the trust document must classify capital gains as principal.

Question 2

Identify which of the following statements is false.

Accepted Answer

A)  The personal exemption for a trust provides a tax savings when some income is allocated to principal. 
B)  Distributable net income (DNI) sets the ceiling on the amount of distributions taxed to the beneficiaries. 
C)  A complex trust must distribute all its income annually. 
D)  The beneficiaries of a simple trust are taxed on their share of DNI irrespective of the amount they receive.

Question 3

A trust must distribute all of its income annually. Capital gains are allocated to principal. The trust has dividend income of $12,000, capital gains of $6,000, and no expenses. Calculate the trust's taxable income.

Accepted Answer

The answer of A trust must distribute all of its...

Question 4

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. The distribution deduction is

Accepted Answer

A)  $25,000. 
B)  $50,000. 
C)  $75,000. 
D)  $100,000.

Question 5

Identify which of the following statements is false.

Accepted Answer

A)  Federal estate taxes related to income in respect of a decedent (IR
D)  is deductible by the estate in the year the IRD is includible in the estate's gross income. 
B)  An example of deductions in respect of a decedent (DR
D)  are property taxes that accrued prior to the decedent's death but were not paid until after death. 
C)  Items of IRD receive a step-up in basis as a result of the decedent's death. 
D)  Interest earned but not received before death is IRD.

Question 6

A client asks about the relevance of state law in classifying items as principal or income. Explain the relevance.

Accepted Answer

The answer of A client asks about the relevance of...

Question 7

A trust reports the following results:
Dividend income $20,000
Capital gains 10,000
Tax-exempt interest 10,000
Trustee fees 3,000
All of the items above are allocated to income. Calculate the maximum amount of trustee fees that are deductible.

Accepted Answer

The answer of A trust reports the following results:
Dividend income...

Question 8

Marge died on August 24 of the current year. Her estate collected taxable bond interest of $10,000 per month beginning in September. The only beneficiary of Marge's estate is Art, a calendar-year taxpayer. Which of the following statements is correct?

Accepted Answer

A)  If the estate selects November 30 as a year-end and makes no distributions prior to that date, the estate will be taxed on $30,000 less a $600 personal exemption for its first tax year. 
B)  If the estate selects January 31 of next year at its year-end and distributes $40,000 to Art in December of this year and nothing in January, the $40,000 will be taxed on Art's next year's tax return. 
C)  If the estate selects December 31 as its year-end and distributes nothing to Art in December and $40,000 in January of next year, $40,000 less the $600 personal exemption will be taxed on the estate's first tax return. 
D)  All of the above are correct.

Question 9

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

Accepted Answer

A)  An irrevocable trust's income is taxed to the grantor. 
B)  Trusts are generally not taxed at favorable rates for income shifting. 
C)  Trusts are not subject to double taxation. 
D)  A trust's long-term capital gains are taxed at a top rate of 15%.

Question 10

A trust is required to distribute 10% of its income to Eleanor. In addition, the trustee in his discretion may distribute income to Eleanor and/or Marshall. The trust has net accounting income of $50,000, none of which is tax-exempt. The trust distributes the $5,000 mandatory payment to Eleanor and also distributes discretionary amounts of $5,000 to Eleanor and $5,000 to Marshall. How much must Eleanor include in income?

Accepted Answer

A)  $5,000 
B)  $10,000 
C)  $50,000 
D)  none of the above

Question 11

Five years ago, Jon transferred stock to an irrevocable trust with First Bank named as trustee, and provided that the trustee is to pay some or all of the trust income to the beneficiary Dan for 15 years. At the end of the 15th year, the trust property, including any undistributed income, will revert to Jon. In the current year, the trust collected $52,000 of dividend income, and distributed $30,000 of this amount to Dan. In addition, the trust sold some of the stock at a $6,000 capital gain. For the current year, the tax results occurred?

Accepted Answer

A)  Dan is taxed on $30,000 of dividends and the trust on the remaining dividends, plus the capital gain, less the $100 personal exemption. 
B)  The trust is taxed on the $52,000 of dividends less the $100 personal exemption, and Jon is taxed on the capital gain. 
C)  Dan is taxed on $30,000 of dividends, and the remaining dividends plus the capital gain are taxed to Jon. 
D)  Jon is taxed on all of the dividends and on the capital gain.

Question 12

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

Accepted Answer

The answer of Explain how to determine the deductible portion...

Question 13

Identify which of the following statements is true.

Accepted Answer

A)  Under the grantor trust rules, a grantor may be taxed on all or a portion of the trust's income even though the income is distributed to the named beneficiary or someone else. 
B)  An irrevocable trust cannot be a grantor trust. 
C)  Large amounts of income can be shifted to children under the age of 18 through the use of trusts that make distributions, and the income will be taxed at the lower rates of the children. 
D)  All of the above are false.

Question 14

In the year of termination, a trust incurs a $20,000 NOL. In addition, it has a $30,000 NOL carryover from the two preceding tax years. The trust distributes 40% of its assets to Sam, 30% of its assets to Alex, and 30% of its assets to Catherine. How much of the NOL can Sam (who has $150,000 of gross income) deduct on his return in the year that the trust terminates?

Accepted Answer

The answer of In the year of termination, a trust...

Question 15

Identify which of the following statements is true.

Accepted Answer

A)  In a complex trust, distributable net income (DNI) does not act as a ceiling on the amount of the distribution deduction. 
B)  Distributable net income (DNI) is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust. 
C)  In a complex trust, distributable net income (DNI) is not reduced by the charitable contribution deduction when comparing DNI with the mandatory distributions in order to determine the amount of the distribution deduction. 
D)  All of the above are false.

Question 16

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 amount of the distribution deduction?

Accepted Answer

A)  $40,000 
B)  $45,000 
C)  $15,000 
D)  $30,000

Question 17

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?

Accepted Answer

A)  $74,000 
B)  $72,000 
C)  $64,000 
D)  $62,000

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  gross income. 
B)  taxable income. 
C)  distributable net income. 
D)  net accounting income.

Question 20

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

Accepted Answer

The answer of What is the basis of inherited IRD...

Exam 14: Income Taxation of Trusts and Estates

If a state has adopted the Revised Uniform Principal and Income Act, which of the following statements is correct?

Identify which of the following statements is false.

A trust must distribute all of its income annually. Capital gains are allocated to principal. The trust has dividend income of $12,000, capital gains of $6,000, and no expenses. Calculate the trust's taxable 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. The distribution deduction is

Identify which of the following statements is false.

A client asks about the relevance of state law in classifying items as principal or income. Explain the relevance.

A trust reports the following results: Dividend income $20,000 Capital gains 10,000 Tax-exempt interest 10,000 Trustee fees 3,000 All of the items above are allocated to income. Calculate the maximum amount of trustee fees that are deductible.

Marge died on August 24 of the current year. Her estate collected taxable bond interest of $10,000 per month beginning in September. The only beneficiary of Marge's estate is Art, a calendar-year taxpayer. Which of the following statements is correct?

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

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

Identify which of the following statements is true.

Identify which of the following statements is true.

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?

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

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