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Exam 28: Income Taxation of Trusts and Estates

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Question 21

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The Leonardo Estate operates a business and generates cost recovery deductions. Which taxpayer(s), if any, can deduct these items, e.g., the deceased, the estate, the income or remainder beneficiaries?

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If the fiduciary entity is operating a t...

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Question 22

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A complex trust automatically is exempt from the Federal AMT.

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Question 23

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Beneficiary information concerning a trust's income and distributions are conveyed on Schedule ____________________ of the Form 1041.

The Zhao Estate generated distributable net income (DNI) this year 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?

Remainder beneficiary Shelley receives a $50,000 net operating loss carryover when the Malone Trust terminates. Shelley deducts this amount ____________________ (for/from) AGI on her Form 1040.

The Willa estate reports $100,000 DNI, composed of $50,000 dividends, $20,000 taxable interest, $10,000 passive income, and $20,000 tax-exempt interest.Willa's two noncharitable income beneficiaries, Shanna and Tom, receive distributions of $75,000 each.How much of each class of income is deemed to have been distributed to Shanna? To Tom? Use the following template to structure your answer.

A fiduciary's distribution deduction shifts the tax burden for current-year income from the entity to the beneficiary.

The IRS encourages ____________________ filing for Forms 1041.

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 of net tax-exempt income.

Judy can claim one-third of the Sweet Estate's cost recovery deductions, because she received one-third of the fiduciary's distributable net income (DNI).

The Doyle Trust reports 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 must distribute $30,000 to Roger and $30,000 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 $25,000 to Roger and $25,000 to Sally.How much income from the trust must Sally recognize?

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 $30,000.Harry's AGI can increase by as much as $40,000.

A fiduciary entity computes its alternative minimum tax in a manner similar to that used for a(n) ____________________.

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

A ____________________ tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary. or

In the year in which an estate terminates, its beneficiaries receive and can use as their own any unexpired NOL carryforwards proportionately to the corpus assets that they received.

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?

"First-tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee.

A complex trust pays tax on the income that it retains and adds to corpus.

The Ulrich 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 $60,000 to Roger and $60,000 to Sally.After paying these amounts, the trustee is empowered to make additional distributions at its discretion.Exercising this authority, the Ulrich trustee distributes an additional $15,000 to Roger and $15,000 to Sally.How much gross income from the trust must Roger recognize?