Question 1

Texas Trust receives $10,000 interest on U.S. Treasury bonds and $15,000 interest on State of New York bonds. All $25,000 is distributed to the trust beneficiary, Gary. Which of the following statements is correct?

Accepted Answer

A)  Gary has $10,000 of taxable interest income and $15,000 of tax- free interest income. 
B)  Gary has no taxable income because the trust must pay the tax. 
C)  Gary has $25,000 of ordinary gross income. 
D)  Gary has $10,000 of capital gain and $15,000 of tax- free interest income.

Question 2

Identify which of the following statements is false.

Accepted Answer

A)  The Uniform Act on principal and income requires depreciation to be charged against income. 
B)  State trust law preempts the trust document when defining income. 
C)  A statement in the trust instrument concerning the allocation of depreciation to principal or income overrides a provision of state law. 
D)  The Uniform Act allocates royalties to both principal and income.

Question 3

Administration expenses incurred by an estate

Accepted Answer

A)  such expenses are only deductible on Form 1041. 
B)  an executor must elect where to deduct administration expenses (Form 706 or Form 1041). 
C)  such expenses are only deductible on Form 706. 
D)  are deductions in respect of a decedent and may be deducted on both the estate tax return (Form 706) and the estate income tax return (Form 1041).

Question 4

Little Trust, whose trust instrument is silent with respect to depreciation, collects rental income of $20,000 and p property taxes of $1,000. Depreciation expense is $5,000.
Little Trust is in a state where all depreciation is charged to principal. What is the trust's net accounting income?

Accepted Answer

The answer of Little Trust, whose trust instrument is silent...

Question 5

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)  A complex trust must distribute all its income annually. 
C)  Distributable net income (DNI) sets the ceiling on the amount of distributions taxed to the beneficiaries. 
D)  The beneficiaries of a simple trust are taxed on their share of DNI irrespective of the amount they receive.

Question 6

Revocable trusts means

Accepted Answer

A)  the transferor may not demand the assets be returned. 
B)  the grantor is always the beneficiary. 
C)  income or estate tax savings for the grantor. 
D)  the assets in the trust avoid probate.

Question 7

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

Question 8

Fred, a cash- basis taxpayer, died on January 15, 2016. In 2017, the estate made a $9,000 distribution from estate income to Fred's sole heir. The estate had $20,000 of taxable interest and a $10,000 net long- term capital gain allocable to corpus. The estate incurred $5,000 in expenses attributable to the estate income. What is the estate's distributable net income (DNI)?

Accepted Answer

A)  $20,000 
B)  $25,000 
C)  $30,000 
D)  $15,000

Question 9

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 taxable amount of the Megan's tier- 2 distribution?

Accepted Answer

A)  $7,500 
B)  $6,250 
C)  $22,500 
D)  $15,000

Question 10

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 11

The $3,000 limitation on deducting net capital losses does not apply to a trust.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

The governing instrument for the Lopez Trust contains no definitions of income and principal. The Trust is locat state that has adopted the Uniform Act. In the current year, the trust reports the following receipts and disburse Dividends $\quad$$\quad \$ 10,000$
Proceeds from sales of stock, including $\$ \mathbf { 1 0 , 0 0 0 }$ of gain $\quad$$\$ 40,000$
Trustee's fee, all charged to income $\quad \$ 500$
CPA's fee for preparation of $\operatorname { tax }$ return $\$ 200$ What is the trust's net accounting income?

Accepted Answer

The answer of The governing instrument for the Lopez Trust...

Question 14

Outline the classification of principal and income under the Revised Uniform Principal and Income Act.

Accepted Answer

The answer of Outline the classification of principal and income...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A trust document does not mention the treatment for depreciation. The state has adopted the Uniform Act. The t document states that depreciation is a charge against corpus. The trust results are the following: $$\begin{array} { l r } 
\text { Business net profits } & \$ 2,000 \
\text { Rental income } & 1,000 \
\text { Depreciation } & 100 \
\text { Rent expense } & 100
\end{array}$$ Calculate net accounting income.

Accepted Answer

The answer of A trust document does not mention the...

Question 17

Briefly discuss the reasons for establishing a trust.

Accepted Answer

The answer of Briefly discuss the reasons for establishing a...

Question 18

A trust reports the following results: $\begin{array}{lr}
\text { Interest from corporate bonds } & \$ 20,000 \
\text { Dividends } & 10,000 \
\text { Tax-exempt interest } & 20,000 \
\text { Trustee fees } & 6,000 \
\text { Capital gain } & 10,000
\end{array}$ All of the items are allocated to income except the capital gains. Calculate the maximum amount of trustee fees t deductible.

Accepted Answer

The answer of A trust reports the following results: \(\begin{array}{lr}
\text...

Question 19

Sukdev Basi funded an irrevocable simple trust in May 2008. The trust benefits Sukdev's son for life and grandson upon the son's death. One of the assets he transferred to the trust was Jetco stock, which had an FMV on the transfer date of $40,000. Sukdev's basis in the stock was $44,000, and he paid no gift tax on the transfer. The stock's value has dropped to $33,000, and the trustee thinks that now, October 2011, might be the time to sell the stock and take the loss deduction. For 2011, the trust will have $20,000 of income exclusive of any gain or loss. Sukdev's taxable income is approximately $15,000. What tax and nontax issues should the trustee consider concerning the possible sale of the stock?

Accepted Answer

The answer of Sukdev Basi funded an irrevocable simple trust...

Question 20

The Tucker Trust was established six years ago. The trust is required to distribute all of the trust income at least annually to Betty for life. Capital gains are credited to principal. The current year results of the trust are as follows: $\begin{array}{lr}&\text { Amounts Allocable To }\
&\text { Income } & \text { Principal } \
\text { Dividends } & \$ 15,000 \
\text { Rental income from land } & 2,500 \
\text { Tax- exempt interest } & 7,500 \
\text { Rental expenses } & 500\
\text { Trustee fees } & & \$ 600 \
\text { Tax return preparation fee } & 250 & \
\text { Capital gain on stock sale (stock purchased five years ago) } & 24,250 & 6,000\
\text { Distribution of net accounting income }&&1,300\
\text { Payment of estimated taxes }
\end{array}$ Compute (a) distributable net income (DNI), (b) the distribution deduction, (c) trust taxable income, and (d) Bett reportable income and its classification. Charge all of the deductible expenses against rent income.

Accepted Answer

The answer of The Tucker Trust was established six years...

Exam 14: Income Taxation of Trusts and Estates

Texas Trust receives $10,000 interest on U.S. Treasury bonds and $15,000 interest on State of New York bonds. All $25,000 is distributed to the trust beneficiary, Gary. Which of the following statements is correct?

Identify which of the following statements is false.

Administration expenses incurred by an estate

Little Trust, whose trust instrument is silent with respect to depreciation, collects rental income of $20,000 and p property taxes of $1,000. Depreciation expense is $5,000. Little Trust is in a state where all depreciation is charged to principal. What is the trust's net accounting income?

Identify which of the following statements is false.

Revocable trusts means

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

The $3,000 limitation on deducting net capital losses does not apply to a trust.

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

Outline the classification of principal and income under the Revised Uniform Principal and Income Act.

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

Briefly discuss the reasons for establishing a trust.