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Exam 20: Income Taxation of Trusts and Estates

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Question 51

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The Form 1041 of a calendar-year trust is due on ____________________ 15.

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Question 52

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When a beneficiary receives a distribution from a trust of an asset other than cash, the realized loss could be disallowed under the ____________________ rule.

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Question 53

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

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 payment of these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $40,000 to Roger and $40,000 to Sally. How much income from the trust must Sally recognize?

This year, the Huang Trust distributed all of its accounting income and $1,000 from corpus. Huang's taxable income for the year is:

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.

What is meant by the term "distributable net income?" What is its significance in connection with the income taxation of estates, trusts and their beneficiaries?

An estate operates a manufacturing business. It can claim a domestic production activities deduction (DPAD).

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?

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

The first step in deriving the taxable income of a trust or estate is to determine its ____________________ income.

One trust that is operated independently for each of its three beneficiaries might be taxed using the ____________________ rule.

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

An example of income in respect of a decedent is the taxpayer's last paycheck, uncollected at death.

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.

Your client Pryce is one of the income beneficiaries of the Santiago Trust. Pryce says to you, "I want all of the exempt interest income from Santiago to be allocated to me, as I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

When a trust distributes an in-kind asset with a realized loss, most likely this loss should be allocated to and immediately deducted by the first-tier beneficiaries.

The Code defines a "simple trust" as which of the following?

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 Roger recognize?

Under the Federal income tax rules for fiduciary entities, a(n) ____________________ generally must use a calendar tax year, but a(n) ____________________can select any tax year-end.