Question 1

A trust reports the following results:  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: ...

Question 2

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 3

Ed Camby sold an apartment building in May 2020 for a small amount of cash and a note payable over five years. Principal and interest payments are due annually on the note in April of 2021 through 2025. Ed died in August 2020. He willed all his assets to his daughter Anna. Ed's gross estate is about $3 million, and his estate tax deductions are very small. What tax issues should the executor of his estate consider with respect to reporting the sale of the building and the collection of the installments?

Accepted Answer

The answer of Ed Camby sold an apartment building in...

Question 4

The Williams Trust was established six years ago. The trust document allows the trustee to distribute income in its discretion to beneficiaries Carol and Karen for the next 15 years. The trust will then be terminated and the trust assets will be divided equally between Carol and Karen. Capital gains are part of principal.
The current year income and expenses of the trust are reported below.  Compute (a)distributable net income (DNI), (b)distribution deduction, (c)trust taxable income, and (d)Carol's and Karen's reportable income and its classification. Charge all of the deductible expenses against the rental income.

Accepted Answer

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

Question 5

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 6

Identify which of the following statements is true.

Accepted Answer

A) The personal exemption available to a trust is adjusted annually based on changes in the consumer price index. 
B) Income received by a trust beneficiary has the same character it had at the trust level. 
C) Distributable net income (DNI)excludes tax-exempt income. 
D) All of the above are false.

Question 7

All of the following are advantages of a sprinkling trust, except

Accepted Answer

A) the trustee can choose the amount to distribute among multiple beneficiaries. 
B) the trustee can determine the amount to retain in the trust. 
C) the trustee can determine the amount to distribute to the sole trust beneficiary. 
D) the trustee can consider the tax rates of the beneficiaries and trust.

Question 8

In which of the following situations will the grantor trust rules apply?

Accepted Answer

A) The trust is revocable and mandates the distribution of income to the named beneficiary. 
B) The trust is irrevocable, and the trustee, who is also the grantor, has the power to distribute or accumulate income for the named beneficiary. 
C) The trust is irrevocable, the income must be paid out currently, and the trust assets will revert to the grantor at the end of nine years. 
D) The grantor trust rules will apply in each of the situations.

Question 9

A trust distributes 30% of its income to Mark and 20% to Nancy. The remaining 50% is accumulated. The trust's depreciation is $1,000. The trust instrument is silent regarding the depreciation deduction. State law requires the depreciation be charged to principal. What part of the depreciation deduction will be allocated to Mark?

Accepted Answer

A) $0 
B) $200 
C) $300 
D) $1,000

Question 10

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. How much of Steve's distribution is taxable?

Accepted Answer

A) $12,500 
B) $25,000 
C) $37,500 
D) $50,000

Question 11

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 12

Estates and trusts

Accepted Answer

A) are taxed on state and municipal bond interest. 
B) are not taxed on capital gains. 
C) receive a deduction for administrative expenses not otherwise deducted on the estate tax return (Form 706). 
D) receive a $1,000 personal exemption.

Question 13

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

Question 14

Beneficiaries of a trust may receive

Accepted Answer

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

Question 15

The conduit approach for fiduciary income tax means

Accepted Answer

A) the distributed income has the same character in the hands of the beneficiary as it has to the trust. 
B) the distributed income goes to all beneficiaries proportionately. 
C) the distributed income is determined by the trustee annually. 
D) the distributed income of a remainder interest is determined by the property.

Question 16

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 17

Which of the following is not an addition to trust taxable income when computing distributable net income (DNI)?

Accepted Answer

A) distribution deduction 
B) capital gains allocated to principal 
C) tax-exempt interest 
D) personal exemption

Question 18

Identify which of the following statements is true.

Accepted Answer

A) Income in respect of a decedent (IR
D) is the gross income the decedent earned before death but had not collected before death. 
B) An estate may deduct up to $5,000 of capital losses against the ordinary income taxable in the estate. 
C) An example of income in respect of a decedent (IR
D) is the gain recognized on property sold by the estate after the decedent's death. 
D) All of the above are false.

Question 19

Identify which of the following statements is true.

Accepted Answer

A) All trusts and estates must use a calendar year-end. 
B) All estates with gross income of at least $500 must file an income tax return. 
C) Trusts are required to make estimated tax payments. 
D) All of the above are false.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 14: Income Taxation of Trusts and Estates

A trust reports the following results: All of the items above are allocated to income. Calculate the maximum amount of trustee fees that are deductible.

Identify which of the following statements is true.

Identify which of the following statements is true.

All of the following are advantages of a sprinkling trust, except

In which of the following situations will the grantor trust rules apply?

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. How much of Steve's distribution is taxable?

Identify which of the following statements is false.

Estates and trusts

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?

Beneficiaries of a trust may receive

The conduit approach for fiduciary income tax means

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

Which of the following is not an addition to trust taxable income when computing distributable net income (DNI) ?

Identify which of the following statements is true.

Identify which of the following statements is true.

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