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Exam 19: Income Taxation of Trusts and Estates

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Question 71

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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 is required to distribute $30,000 to Roger and $60,000 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?

A) $70,000.
B) $65,000.
C) $60,000.
D) $30,000.
E) Some other amount.

F) B) and E)
G) B) and D)

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Question 72

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The Williamson Estate generated distributable net income (DNI) this year of $120,000,one-third of which was tax-exempt interest,and the balance of which was long-term capital gain.Muffy Williamson,the sole income beneficiary of the estate,received a distribution of the entire $150,000 fiduciary accounting income of the entity.How is this distribution accounted for by Muffy?

A) $150,000 ordinary income.
B) $120,000 ordinary income.
C) $80,000 long-term capital gain, $40,000 exempt interest.
D) $100,000 long-term capital gain, $50,000 exempt interest.

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

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Question 73

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Which of the following is a typical duty of an executor?

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

Determine the tax effects of the indicated losses for the Yellow Estate for both tax years.The estate holds a variety of investment assets,which it received from the decedent,Mrs.Yellow.The estate's sole income and remainder beneficiary is Yellow,Jr.

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 Prasad Trust operates a welding business.Its current-year cost recovery deductions properly amount to $75,000.Prasad's accounting income was $100,000,of which $50,000 was distributed to first-tier beneficiary Chuck,$30,000 was distributed to second-tier beneficiary Ruby,and $20,000 was accumulated by the trustee.Ruby also received a $25,000 corpus distribution.Prasad's DNI was $80,000.Identify the treatment of Prasad's cost recovery deductions.

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

Complete the chart below,indicating trust accounting income for each of the alternatives.For this purpose,use the following information.

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

The grantor of a trust generally designates both ____________________ and ____________________ beneficiaries under the controlling agreement.

The Circle Trust has some exempt interest income for the year. How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?

When a beneficiary receives a distribution from a trust of an asset other than cash,the realized loss could be disallowed under the ____________________ ____________________ rule.

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.

The Raven Trust was terminated this year and David,the beneficiary of the corpus,received all of the trust assets.The trust had a $10,000 net operating loss; this was the only tax year in which the trust operated a business.The entity has one income beneficiary,Flo.As a result of these transactions:

By____________________ various items to entity accounting income,the will or trust determines the size of the distribution to the income beneficiaries.

The Jain Estate is required to pay its entire annual accounting income to Sam and Janet.The estate's personal exemption is:

A fiduciary assigns its tax credits to beneficiaries corresponding to the disposition of its ____________________ ____________________ for the year.

The Winston Trust is classified as a grantor trust,because the donor can dictate the corpus investments made by the trustee. Consequently,Winston need not file an annual Form 1041.

List several key planning ideas with respect to the income taxation of a complex trust and its beneficiaries.