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Exam 28: Income Taxation of Trusts and Estates

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Question 51

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Beneficiary Terry received $40,000 from the Urgent Trust.Trust accounting income for the year was $50,000.The trust generated $30,000 in cost recovery deductions.How much can Terry deduct with respect to the cost recovery deductions that Urgent generated?

A) $30,000.
B) $24,000.
C) $6,000.
D) $0.

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

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Question 52

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One trust that is operated independently for each of its three beneficiaries might be taxed using the ____________________ rule.

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Question 53

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If provided for in the trust agreement,a trust might terminate when the income beneficiary reaches age 30.

The Roz Trust has 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 $30,000 to Roger and $30,000 to Sally.After payment of these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $40,000 to Roger and $40,000 to Sally.How much income from the trust must Sally recognize?

The Wilson Trust is required to distribute its accounting income every year,one-half to Missy Wilson,and one-half to the Lung Cancer Research Center.What is the Trust's personal exemption?

The Edgerton Estate generated distributable net income (DNI) this year of $100,000,one-fourth of which was tax-exempt interest,and the balance of which was long-term capital gain.Kyle Edgerton,the sole income beneficiary of the Estate,received a distribution of the entire $125,000 accounting income of the entity.How does Kyle report the distribution?

Sixty percent of the income received by the Atom Trust this year constituted municipal bond interest.Atom's trustee also made a $100,000 gift to the United Fund,a qualifying charity.The charitable deduction associated with this gift is limited to $40,000.

Three weeks after Tina died,her brother Tony properly received Tina's last paycheck from her employer.The gross amount of the check was $4,000,and a $700 deduction for state income taxes was subtracted in computing the net amount of the payment.Which of the following statements is true?

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?

The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $9,000 for the interest income.

The distributable net income (DNI) of a fiduciary taxpayer:

The Code defines a "simple trust" as which of the following?

Can a trust document assign to specific income beneficiaries the right to receive certain tax-favorable items (e.g. ,MACRS deductions,exempt income)? Or must all distributions follow the character of income and deductions appearing in distributable net income (DNI)? Explain.

Remainder beneficiary Shelley receives a $50,000 net operating loss carryover when the Malone Trust terminates.Shelley deducts this amount ____________________ (for/from)AGI on her Form 1040.

List several key planning ideas with respect to the income taxation of a complex trust and its beneficiaries. Where fiduciary entities are used to shift income among taxpayers,the following planning objectives should be kept in mind.

The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $35,000.Drabb is subject to a 35% marginal income tax rate.Its sole beneficiary,Eddie,is subject to a 15% marginal income tax rate.Drabb's current-year distributable net income is $95,000.What is the most preferable action for the trustee of Drabb to take,considering only the related tax consequences?

A trust passes through to its income beneficiaries the data needed to compute the domestic production activities deduction.

The first step in computing an estate's taxable income is the determination of its distributable net income for the year.

Like a partnership,the fiduciary is a tax-reporting,but not a separate tax-paying entity.