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Exam 20: Income Taxation of Trusts and Estates

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Question 21

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If the grantor can receive borrowed funds from the trust at a below-market interest rate, the entity ____________________ (is, is not) treated as a grantor trust.

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Question 22

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

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B) False

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Question 23

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Generally, an estate's taxable income is computed in a manner similar to that used for a(n) ____________________.

Summarize the Federal income tax rules that apply to a trust or estate concerning the alternative minimum tax. Include comments about the applicable tax rates, and any personal exemption.

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:

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 Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

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 ____________________.

A trust might be used when a married couple is divorcing.

For each of the following independent statements, choose the best answer. -Distributable net income is used to account for distributions by the entity to its beneficiaries.

The trust instrument indicates whether cost recovery is ____________________ to fiduciary accounting income, thereby reducing the amount of the distribution to the income beneficiary.

For each of the following independent statements, choose the best answer. -​A decedent created the entity.

Distributable net income (DNI) is the ____________________ (maximum, minimum) amount that can be included in the beneficiaries' gross incomes from the fiduciary for the year.

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.

When a trust distributes an in-kind asset with a realized loss, most likely this loss cannot be immediately deducted by the first-tier beneficiary.

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 $40,000.

Consider the term fiduciary accounting income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?

For each of the following independent statements, choose the best answer. -The entity is entitled to a personal exemption of $600.

The Uldis Trust has distributable net income (DNI) 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 Roger recognize?

Identify the parties that are present when an estate is created, and their key duties. Then do the same for a trust.