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Exam 28: Income Taxation of Trusts and Estates

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Question 71

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

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Question 72

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The Eagleton Trust generated distributable net income (DNI) this year of $120,000,one-third of which was portfolio income,and the balance of which was exempt interest.Under the terms of the trust,Clara Eagleton is to receive an annual income distribution of $40,000.At the discretion of the trustee,additional distributions can be made to Clara,or to Clark Eagleton III.This year,the trustee's distributions to Clara totaled $60,000.Clark also received $60,000.How much of the trust's DNI is assigned to Clark?

A) $40,000.
B) $60,000.
C) $70,000.
D) $100,000.

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

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Question 73

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One-third of the Hermann Estate's distributable net income consists of qualifying dividends.Thus,when income beneficiary Susie receives a $30,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

Three months after Emma died,her executor received the final $10,000 installment of Emma's Super Lottery winnings from the state.Which of the following statements is true?

In computing distributable net income (DNI)for a trust,one removes any net passive income or loss.

Generally,an administrative expense should be claimed on the decedent's estate tax return,because it is subject to a higher marginal tax bracket than is the estate's taxable income.

Trusts typically use a calendar tax year.

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.

When a fiduciary distributes to a beneficiary a non-cash asset,how is the realized gain or loss treated?

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

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

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 must distribute $30,000 to Roger and $30,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $10,000 to Roger and $30,000 to Sally.How much gross income from the trust must Sally recognize?