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Exam 20: Income Taxation of Trusts and Estates

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Question 41

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Jose is subject to the top marginal Federal income tax rates. Carlita is considering establishing a trust in which Jose would be an income beneficiary. Considering only income tax consequences, Jose should be designated as:

A) A first-tier beneficiary.
B) A second-tier beneficiary.
C) Only a remainder beneficiary.
D) Both a first- and a second-tier beneficiary.

E) C) and D)
F) B) and C)

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Question 42

Multiple Choice

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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?

A) Complex trust.
B) Partnership.
C) S corporation.
D) All of the above taxpayers use Schedules K and K-1.

E) All of the above
F) A) and D)

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Question 43

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In computing the Federal taxable income of a trust, the (first, last) step is to determine its fiduciary accounting income.

The Uldis Trust reports 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 $75,000 to Roger and $75,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Uldis trustee distributes an additional $10,000 to Roger and $30,000 to Sally. How much gross income from the trust must Sally recognize?

The Suarez Trust generated distributable net income (DNI) this year of $150,000, two-thirds of which was portfolio income, and the balance of which was exempt interest. Under the terms of the trust, Clara Suarez is to receive an annual income distribution of $30,000. At the discretion of the trustee, additional distributions can be made to Clara or to Clark Suarez III. This year, the trustee's distributions to Clara totaled $60,000. Clark received $90,000. How much of the trust's DNI is assigned to Clara?

Which of the following taxpayers can be subject to an entity-level Federal income tax?

The rental income of a trust usually is allocable to (income, remainder) beneficiaries.

A fiduciary entity computes its alternative minimum tax in a manner similar to that used for a(n) ____________________.

Under IRS regulations, the decedent's estate must terminate within four years of the date of death, so as to minimize income-shifting techniques.

The Yan Estate is your client, as are many of the decedent's family members. Determine the tax effects of the indicated losses for the Yan Estate for both tax years. The estate holds a variety of investment assets, which it received from the decedent, Mrs. Yan. The estate's sole income and remainder beneficiary is Yan, Jr. Tax Year Loss Generated 2015 (first tax year) Taxable income ($300) Capital loss ($20,000) 2016 (final tax year) Taxable income ($40,000)

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.

Harry, the sole income beneficiary, received a $40,000 distribution from the Lucy Trust, in a year when the trust's distributable net income was $30,000. Harry's AGI can increase by as much as $40,000.

For each of the following independent statements, choose the best answer. e. Tax attribute of complex trusts only f. Tax attribute of estates only g. Tax attribute of estates and complex trusts h. Tax attribute of neither estates nor complex trusts -The entity can choose between the cash and accrual methods of reporting its income and deductions.

The deduction for the Sharma Trust's $100,000 gift to charity is when one­third of Sharma's accounting income for the tax year constitutes exempt interest income.

A fiduciary's cost recovery deductions are assigned corresponding to the disposition of entity ____________________ income for the year.

A decedent's income in respect of a decedent is subject to the Federal income tax, but it is excluded from the estate tax.

The DaSinzi Estate has two equal income beneficiaries (Rollo and Luisa) and one remainder beneficiary (Coco). The estate operates a business and generates cost recovery deductions. Which taxpayer(s), if any, can deduct these items, e.g., the deceased, the estate, Rollo, Luisa, or Coco?

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. a. Complex b. Decedent c. Executor d. Grantor e. Living f. Reversionary g. Simple h. Sprinkling i. Trustee -A trust that might be used to reduce probate costs, but not Federal estate and gift tax.

The trustee of the Miguel Trust can distribute any amount of accounting income and corpus to the trust's income beneficiaries, Paula and George. This year, the trust incurred the following. The trustee distributed $40,000 to Paula and $40,000 to George. a. What is Miguel's trust accounting income? b. What is Miguel's DNI? c. What is Miguel's taxable income? d. How much gross income is recognized by each of the beneficiaries?

For each of the following independent statements, choose the best answer. e. Tax attribute of complex trusts only f. Tax attribute of estates only g. Tax attribute of estates and complex trusts h. Tax attribute of neither estates nor complex trusts -The entity typically can choose any fiscal tax year.