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Exam 28: Income Taxation of Trusts and Estates

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Question 31

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Your client Pryce is one of the income beneficiaries of the Santiago Trust. Pryce says to you, "I want all of the exempt interest income from Santiago to be allocated to me, because I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

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Special allocations of DNI are allowed o...

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Question 32

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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?

A) Entity taxable income.
B) Entity adjusted gross income.
C) Distributable net income.
D) Fiduciary accounting income.

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

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Question 33

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Which of the following is a typical duty of a trustee?

This year, the Zhao Estate generated distributable net income (DNI) of $100,000, one-fourth of which was tax- exempt interest, and the balance of which was long-term capital gain. Kyle Zhao, 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?

Which of the following taxpayers can be subject to an entity-level Federal income tax?

A complex trust pays tax on the income that it accumulates (i.e., that it does not distribute).

Ellie Inc., a calendar year C corporation, wants to make a gift to a charity that is deductible on its year 1 Form 1120. The gift must be made by Ellie:

For each of the following independent statements, choose the best answer. -The entity was created by either a decedent or a living person.

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

When a trust operates a trade or business, it can claim a deduction for wages paid to employees.

With respect to a trust, the terms creator, donor, and grantor are synonyms.

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

The Jiang Trust operates a manufacturing business. Yan created the trust several years ago by contributing a successful sole proprietorship. The trust distributed one-half of its DNI this year to Yan. Yan can retain all of the trust's depreciation deductions if:

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

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 12% marginal income tax rate. Drabb's current-year distributable net income is $95,000. What is the most preferable action for Drabb's trustee to take considering only the related tax consequences?

This year, the Suarez Trust generated distributable net income (DNI) 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?

The Doyle Trust reports distributable net income of $100,000 for the year 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 can make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $25,000 to Roger and $25,000 to Sally. How much income from the trust must Sally recognize?

You are responsible for the Federal income tax filings of the Tyrone Trust. Summarize the relevant due dates and filing requirements for Tyrone.

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

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