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Exam 20: Income Taxation of Trusts and Estates

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Question 71

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The Code defines a grantor trust as which of the following?

A) One that is required to file Form 1041-G.
B) One that the grantor can revoke or otherwise amend.
C) One in which a member of the grantor's family is the sole trustee.
D) One that makes annual payments to designated charities.

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

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Question 72

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Trusts can select any Federal income tax year-end.

A) True
B) False

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Question 73

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The Chen Trust incurred the following items during the year. What is Chen's deduction for the tax preparation fees? $\begin{array}{lr}\text { Taxable interest received } & \$ 40,000 \\\text { Tax-exempt interest received } & 60,000 \\\text { Tax preparation fees paid } & 5,000\end{array}$

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

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. -The fiduciary in charge of a trust.

Corelle is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries Kathie, Lynn, Mark, and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each. For the current calendar year, the trust incurs ordinary business income of $40,000, a long-term capital gain of $20,000 allocable to income), and a trustee commission expense of $4,000 allocable to corpus). Use the format of Exhibit 20.5 in the text to address the following items: a. How much income is each beneficiary entitled to receive? b. What is the trust's DNI? c. What is the trust's taxable income? d. How much is taxed to each of the beneficiaries?

Under IRS regulations, the decedent's estate must terminate within four years of the date of death, to minimize income-shifting techniques.

Every simple trust is allowed a $ _________personal exemption.

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

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 Clara?

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is simple or complex? When is this determination made?

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

A________ first-, second-, third-) tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary.

List and discuss the three major functions of distributable net income DNI) as that amount is used under Federal income tax law.

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

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

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

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. -The fiduciary in charge of an estate.

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

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. -An estate always is created upon the death of this party.