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Exam 20: Income Taxation of Trusts and Estates

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Question 31

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Dexter established a divorce trust to benefit his ex-wife Jena. The accounting income of the trust is distributed to Jena, in satisfaction of the year's alimony obligation. Under Subchapter J rules, , and not the trust, is taxed on the amount of the distribution.

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Question 32

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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 $60,000.

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B) False

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Question 33

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The Prakash Estate has equal income beneficiaries Sam and Janet. As allowed by the terms of the will, the estate makes no income distributions during the current tax year. The estate's personal exemption is:

The Taft Estate was established when Winnie Taft died on March 1, 2014. It selects a fiscal Federal income tax year that ends on October 31. For which tax year ending October 31 must Taft begin to make quarterly estimated Federal income tax payments?

When DNI includes exempt interest income, the beneficiary includes less than the full amount of DNI in current-year gross income.

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 -An estate always is created upon the death of this party.

The Crown Trust distributed one-half of its accounting income to Lee this year. Lee also is allocated one-half of Crown's credit for building low­income housing.

Beginning with its tax year, an estate must remit quarterly Federal estimated income tax payments.

The Federal income taxation of a trust or estate has been described as a "modified pass­through" system. Compare fiduciary tax rules to those that apply to LLCs and to individuals.

If provided for in the controlling agreement, a trust might terminate when the income beneficiary reaches age 35.

This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) . Nano distributed $30,000 cash to Horatio, its sole income beneficiary. Nano is a complex trust. Nano's distribution deduction is:

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 -Distributable net income is used to account for distributions by the entity to its beneficiaries.

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 $10,000 for the interest income.

Income beneficiary Molly wants to receive all of the municipal bond interest income of the Brenner Trust. A special allocation of this sort must be supported by a non-tax .

The trustee of the Epsilon Trust distributed an asset to Telly, a qualifying income beneficiary. The asset's basis to the trust was $10,000, and its fair market value on the distribution date was $25,000. Which of the following statements is true?

The Moot Trust distributes an asset to its income beneficiary that shows a realized gain. What are the Federal income tax consequences of the distribution? What if the asset shows a realized loss?

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 -The person who transfers assets to a trust.

In computing distributable net income (DNI) for a trust, one removes any net capital gain or loss that is allocable to income.

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate. Generally, an administrative expense should be claimed on the estate's income tax return.

To reduce trustee commissions, the Sigrid Trust is operated as though it were two trusts (i.e., with 70-year-old Grandma and 7-year old Skippy each holding equal shares) . This year the trust generated distributable net income (DNI) of $80,000. The Sigrid trustee distributed $100,000 to Grandma this year: $40,000 as her one-half share of the entity's income, and $60,000 as a distribution of principal. Skippy received no distribution. How much of the year's distributable net income is assigned to Grandma?