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Exam 19: Income Taxation of Trusts and Estates

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Question 41

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The Yellow Trust incurred $10,000 of portfolio income.Its corporate trustee paid fiduciary fees of $1,000 therefrom,and also paid $1,000 in premiums for a life insurance policy on Marcia,the grantor of the trust.How much gross income does Marcia include with respect to these trust activities?

A) $800.
B) $1,000.
C) $8,000.
D) $9,000.
E) $10,000.

F) All of the above
G) None of the above

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Question 42

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Trusts are created exclusively to reduce tax liabilities.

A) True
B) False

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Question 43

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_________________________ ____________________ ____________________ is the maximum amount that can be included in the beneficiaries' gross incomes from the fiduciary for the year.

For a calendar-year entity,the Form 1041 has an unextended due date of April 15.

An estate cannot claim a § 199 domestic production activities deduction,as the deduction passes through to the income beneficiaries.

If provided for in the trust agreement,a trust might terminate when the income beneficiary is married.

The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is used to pay a life insurance premium on the grantor's spouse,Subchapter J rules are ignored,and the income is taxed to the grantor.

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

A remainder beneficiary generally must wait until the trust terminates to receive any distribution of income.

Like a partnership,the fiduciary is a tax-reporting,but not a separate tax-paying entity.

What factors should be considered in choosing a trustee?

The LMN Trust 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 has ordinary income of $80,000,a long-term capital gain of $20,000 (allocable to corpus),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Figure 19-3 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?

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

Which of the following is a typical duty of a trustee?

Describe how an estate or trust treats "income in respect of a decedent."

An example of an expense in respect of a decedent is the state income taxes attributable to the taxpayer's last paycheck,uncollected at death.

The first step in computing a fiduciary's taxable income is the determination of its distributable net income for the year.

Trusts typically use a calendar tax year.

A fiduciary entity may incur a liability for the AMT.

A living trust is a _________________________ entity that is used to avoid probate upon the death of the grantor.