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Exam 20: Income Taxation of Trusts and Estates

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Question 31

True/False

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The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate. Generally, an administrative expense should be claimed on the estate's income tax return.

A) True
B) False

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Question 32

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Three months after Brianna Timkin died, her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago. Which of the following statements is true?

A) The $40,000 is both included in Brianna's gross estate, and subject to tax on her estate's income tax return.
B) The $40,000 is subject to neither income nor estate tax, because it was received after Brianna's death.
C) The $40,000 is subject to tax only on her estate's income tax return.
D) The $40,000 is included only in Brianna's gross estate.

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

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Question 33

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A Form 1041 must be filed by a trust that has $____________________or more gross income for the tax year.

The Stratford Estate incurs a $25,000 casualty loss in disposing of the real property of the decedent. The deduction is claimed against the Federal estate tax, unless by election it is claimed on the estate's income tax return.

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?

For each of the following independent statements, choose the best answer. -The entity is controlled by Federal-level probate laws.

The Kapoor Trust is your client. Complete the chart below, indicating Kapoor's trust accounting income for each of the alternatives. $\begin{array} { l r } \text { Interest income, taxable } & \$ 60,000 \\\text { Interest income, tax-exempt } & 30,000 \\\text { Interest income, tax-exempt but AMT preference } & 10,000 \\\text { Long-term capital gain } & 40,000 \\\text { Trustee fee } & 5,000\end{array}$ ? Trust agreement provisions Trust accounting income Fees and capital gains allocable to corpus ______________________ Capital gains allocable to corpus, one-half of fees allocable to income ______________________ Capital gains allocable to income, silent concerning allocation of fees ______________________ Fees and exempt income allocable to corpus, silent concerning allocation of capital gain/loss ______________________

Corpus, principal, and assets of the trust are synonyms.

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum, a qualifying charity. The trust's personal exemption is:

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust whose remainder beneficiary is its grantor.

Does the estate or trust's distributable net income always equal its deduction for distributions to beneficiaries? Are the two amounts ever equal in amount? Answer for estates, simple trusts, and complex trusts.

Trusts can select any Federal income tax year-end.

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

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

A fiduciary's cost recovery deductions are assigned corresponding to the disposition of entity ____________________ income for the year.

In computing the Federal taxable income of a trust, a modified ____________________ approach is used.

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust that can accumulate, rather than distribute, its accounting income.

For each of the following independent statements, choose the best answer. -The entity's management generally is directed by the controlling document as to the date of the entity's termination.

The Raja Trust operates a welding business. Its current-year cost recovery deductions properly amount to $75,000. Raja's accounting income was $100,000, of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee. Ruby also received a $25,000 discretionary corpus distribution. Raja's DNI was $80,000. Identify the treatment of Raja's cost recovery deductions.

During the current year, the Santo Trust received $30,000 of taxable interest income, paid trustee's commissions of $3,000, and had no other income or expenses. The Santo trust instrument requires that $20,000 be paid annually to Marilyn, and $40,000 be paid annually to Domingo. How much gross income must Marilyn and Domingo recognize?