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Exam 14: Income Taxation of Trusts and Estates

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Question 31

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Identify which of the following statements is false.

A) State trust law preempts the trust document when defining income.
B) The Uniform Act on principal and income requires depreciation to be charged against income.
C) A statement in the trust instrument concerning the allocation of depreciation to principal or income overrides a provision of state law.
D) The Uniform Act allocates royalties to both principal and income.

E) A) and B)
F) A) and C)

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Question 32

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Identify which of the following statements is false.

A) Federal estate taxes related to income in respect of a decedent (IRD) 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 (DRD) 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.

E) None of the above
F) A) and D)

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Question 33

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A simple trust has the following results: Calculate the distribution deduction.

Briefly discuss some of the reasons for using a revocable trust.

Yellow Trust must distribute 33% of its income annually to Patrick. In addition, the trustee in its discretion may distribute additional income to Minna or Patrick. In the current year, the trust has net accounting income and distributable net income of $150,000, none from tax-exempt sources. The trust makes a $50,000 mandatory distribution to Patrick and a discretionary distribution of $20,000 each to Patrick and Minna. What amounts of income do Patrick and Minna report?

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. Distribution of net accounting income to: 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.

Explain to a client the significance of the income and principal categorization scheme used for fiduciary accounting purposes.

A trust that is required to distribute all of its income annually receives a personal exemption for the year of

Mary died this year. Her will creates a trust for the benefit of her children. A portion of the estate's assets are placed in this trust. The estate has income from assets it will transfer to other beneficiaries at a later date. Mary's brother Joe is the trustee of the trust and executor of the estate. Which of the following statements is true?

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.

Outline the classification of principal and income under the Revised Uniform Principal and Income Act.

A trust document does not define income or principal. The state in which the trust is operated has adopted the Uniform Act, including allocation of depreciation to income. The trust reports the following: Proceeds from stock sale What is the amount of the trust's net accounting income?

Identify which of the following statements is false.

List some common examples of principal and income items.

Explain the three functions of distributable net income (DNI).

A tax entity, often called a fiduciary, includes all of the following except

A trust is required to distribute all of its income annually. It distributes all of the income and $2,000 of principal to the beneficiary. Which of the following statements is correct?

Identify which of the following statements is true.

Identify which of the following statements is false.

A trust has the following results: The Uniform Act is followed. The trust document requires one-fifth of the income to be distributed annually to David and the remainder of the income to Patty. What is distributable net income?