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Exam 20: Income Taxation of Trusts and Estates

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Question 1

True/False

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Reyes contributed assets to a trust,designating daughter Maria as the income beneficiary,and grandson Julio as the remainder beneficiary.This year,fiduciary accounting income was $50,000.The trustee paid $5,000 of this amount as premiums for a life insurance policy on Anita,Reyes' wife.Reyes pays Federal income tax on $5,000 for the year.

A) True
B) False

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Question 2

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

A) $0.
B) ($100) .
C) ($300) .
D) ($1,000) .

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

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Question 3

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Winston is classified as a grantor trust,because Harry,the donor,can revoke the trust.Consequently,Winston need not file an annual Form 1041,and Harry reports the trust items on his own Form 1040.

The Griffin Trust makes a gift to a qualifying charity.Griffin's entity-level deduction is allowed only to the extent of 50% of distributable net income.

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

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

The Rodriguez Trust generated $300,000 in alternative minimum taxable income (AMTI) this year.The trust is subject to a marginal Federal income tax rate of:

One-fourth of the Cruger Estate's distributable net income consists of net long-term capital gains.Thus,when income beneficiary Susie receives a $40,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

Generally,an estate's taxable income is computed in a manner similar to that used for a(n)____________________.

In computing Federal taxable income,can the trust or estate use its distributable net income (DNI)as its deduction for distributions to beneficiaries? Explain.

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

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?

The Whitmer Trust operates a manufacturing business.When Whitmer incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.

To reduce trustee commissions,the Sigrid Trust is operated as though it were two trusts (i.e. ,with 70-year-old Grandma and 7-year old Skippy each holding equal shares) .This year the trust generated distributable net income (DNI) of $80,000.The Sigrid trustee distributed $100,000 to Grandma this year: $40,000 as her one-half share of the entity's income,and $60,000 as a distribution of principal.Skippy received no distribution.How much of the year's distributable net income is assigned to Grandma?

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 $20,000 to Roger and $20,000 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 $25,000 to Roger and $50,000 to Sally.How much gross income from the trust must Sally recognize?

An estate ____________________ (can/cannot)be liable for a Federal alternative minimum tax.

An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.

The Bard Estate incurs a $25,000 fee 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.

Income beneficiary Molly wants to receive all of the municipal bond interest income of the Brenner Trust.A special allocation of this sort must be supported by a non-tax ____________________.

The Chen Trust is required to distribute its accounting income every year,one-half to Missy Chen,and one-half to the local church's homeless shelter.What is the Chen Trust's personal exemption?