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Exam 28: Income Taxation of Trusts and Estates

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Question 21

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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 $50,000.Harry's AGI can increase by as much as $50,000.

A) True
B) False

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Question 22

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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.Administrator f.Reversionary g.Simple h.Sprinkling i.Trustee -The fiduciary in charge of an estate.

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Question 23

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When a beneficiary receives a distribution from a trust of an asset other than cash,generally a(n) ____________________ basis is assigned to the asset.

For each of the following independent statements, choose the best answer. a.Tax attribute of complex trusts only b.Tax attribute of estates only c.Tax attribute of estates and complex trusts d.Tax attribute of neither estates nor complex trusts -The entity has a legal identity separate from its beneficiaries.

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

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

In computing the Federal taxable income of a trust,a modified ____________________ approach is used.

Which of the following is a typical duty of an executor of an estate?

An example of income in respect of a decedent is the taxpayer's last paycheck,uncollected at death.

The Ellie Trust,a calendar-year entity,wants to make a gift to a charity that is deductible on its year 1 Form 1041.The gift must be made by Ellie:

For each of the following independent statements, choose the best answer. a.Tax attribute of complex trusts only b.Tax attribute of estates only c.Tax attribute of estates and complex trusts d.Tax attribute of neither estates nor complex trusts -The entity was created by either a decedent or a living person.

The Stratford Estate incurs a $25,000 casualty loss in disposing of the real property of the decedent.The deduction is claimed against the Federal estate tax,unless by election it is claimed on the estate's income tax return.

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

For each of the following independent statements, choose the best answer. a.Tax attribute of complex trusts only b.Tax attribute of estates only c.Tax attribute of estates and complex trusts d.Tax attribute of neither estates nor complex trusts -The entity's AMT preferences and adjustments pass through to the income beneficiaries.

An estate ____________________ (can/cannot) be liable for a Federal alternative minimum tax.

When a beneficiary receives a distribution from a trust of an asset other than cash,the realized loss generally is ____________________ (recognized,not recognized) by the trust.

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 Clark?

Corpus,principal,and assets of the trust are synonyms.

The Raja Trust operates a welding business.Its current-year cost recovery deductions properly amount to $75,000.Raja's accounting income was $100,000,of which $40,000 was distributed to first-tier beneficiary Chuck,$25,000 was distributed to second-tier beneficiary Ruby,and $35,000 was accumulated by the trustee.Ruby also received a $25,000 discretionary corpus distribution.Raja's DNI was $80,000.Identify the treatment of Raja's cost recovery deductions.

Counsell is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie,Lynn,Mark,and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year,the trust incurs ordinary business income of $40,000,a long-term capital gain of $20,000 (allocable to corpus),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Exhibit 20.5 in the text to address the following items. a.How much income is each beneficiary entitled to receive? b.What is the trust's DNI? c.What is the trust's taxable income? d.How much is taxed to each of the beneficiaries?