Question 1

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 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

Trusts are required to make estimated tax payments.

Accepted Answer

A) True 
 B)False

Question 6

Income in respect of a decedent (IRD) is included in the decedent's final income tax return.

Accepted Answer

A) True 
 B)False

Question 7

An example of income in respect to a decedent (IRD) for a cash method of accounting taxpayer is

Accepted Answer

A)  salary earned but not received prior to death. 
B)  interest earned but not received prior to death. 
C)  gain from an installment sale entered into before death. 
D)  All of the above are examples.

Question 8

Describe the tier system for trust beneficiaries.

Accepted Answer

The answer of Describe the tier system for trust beneficiaries....

Question 9

Beneficiaries of a trust may receive

Accepted Answer

A)  a remainder interest only. 
B)  an income interest only. 
C)  both an income and a remainder interest. 
D)  Any of the above is correct.

Question 10

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 11

A trust reports the following results:  The trust must distribute all of its income annually. Calculate taxable income after the distribution deduction.

Accepted Answer

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

Question 12

Karly created a $300,000 trust that provided her mother with a lifetime income interest starting on January 1, with the remainder to go to her son. Karly expressly retained the power to revoke both the income and remainder interests at any time. Who will be taxed on the trust's income?

Accepted Answer

A)  Karly's mother 
B)  the trust 
C)  Karly 
D)  Karly's son

Question 13

Distributable net income (DNI) is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust.

Accepted Answer

A) True 
 B)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 false.

Accepted Answer

A)  Assets in a revocable trust do not avoid probate. 
B)  The IRS may terminate an estate as a taxpayer after the expiration of a reasonable period of time for performance of the administrative duties. 
C)  For purposes of trust administration, the term "sprinkling" relates to the discretionary authority of the trustee to distribute income among various beneficiaries. 
D)  Assets in a revocable trust are included in the gross estate.

Question 16

An inter vivos trust may be created by all of the following except

Accepted Answer

A)  a trustor. 
B)  a grantor. 
C)  a transferor. 
D)  an executor.

Question 17

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 18

For the first five months of its existence (August through December 2008), the Estate of Christine Lowry had gross income (net of expenses) of $7,000 per month. For January through July 2009, the executor estimates that the estate will have gross income (net of expenses) totaling $5,000. The estate's sole beneficiary is Christine's son, Jonathan, who is a calendar- year taxpayer. Jonathan incurred a large NOL from his sole proprietorship years ago, and $34,000 of the NOL carryover remains but expires at the end of 2008. During 2008, Jonathan received only $5,000 of income from part- time employment. What tax issues should the executor of Christine's estate consider with respect to the reporting of the estate's income?

Accepted Answer

The answer of For the first five months of its...

Question 19

In the current year, a trust has distributable net income (DNI) of $30,000. During the year, the trust makes a mandatory distribution to Sarah of $5,000 and a discretionary distribution of $10,000 to Kyle. The trust has no tax- exempt income. The distribution deduction of the trust is

Accepted Answer

A)  $30,000. 
B)  $15,000. 
C)  $5,000. 
D)  $10,000.

Question 20

A complex trust permits accumulation of current income, provides for charitable contributions, or distributes principal during the taxable year.

Accepted Answer

A) True 
 B)False

Exam 14: Income Taxation of Trusts and Estates

Identify which of the following statements is false.

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

Revocable trusts means

Trusts are required to make estimated tax payments.

Income in respect of a decedent (IRD) is included in the decedent's final income tax return.

An example of income in respect to a decedent (IRD) for a cash method of accounting taxpayer is

Describe the tier system for trust beneficiaries.

Beneficiaries of a trust may receive

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.

A trust reports the following results: The trust must distribute all of its income annually. Calculate taxable income after the distribution deduction.

Karly created a $300,000 trust that provided her mother with a lifetime income interest starting on January 1, with the remainder to go to her son. Karly expressly retained the power to revoke both the income and remainder interests at any time. Who will be taxed on the trust's income?

Distributable net income (DNI) is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust.

Identify which of the following statements is false.

An inter vivos trust may be created by all of the following except

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?

In the current year, a trust has distributable net income (DNI) of $30,000. During the year, the trust makes a mandatory distribution to Sarah of $5,000 and a discretionary distribution of $10,000 to Kyle. The trust has no tax- exempt income. The distribution deduction of the trust is

A complex trust permits accumulation of current income, provides for charitable contributions, or distributes principal during the taxable year.