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Exam 20: Income Taxation of Trusts and Estates

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Question 61

Multiple Choice

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

A) Determine the date on which trust terminates.
B) Modify the language of the trust instrument so as to lower the entity's Federal income tax.
C) Pay the estate taxes of the grantor.
D) Allocate items between income and corpus using Subchapter J rules.
E) All of the above.

F) B) and C)
G) A) and B)

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Question 62

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

A) True
B) False

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Question 63

Multiple Choice

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The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $35,000.Drabb is subject to a 35% marginal income tax rate.Its sole beneficiary,Eddie,is subject to a 15% marginal income tax rate.Drabb's current-year distributable net income is $95,000.What is the most preferable action for the trustee of Drabb to take,considering only the related tax consequences?

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

The Purple Trust incurred the following items this year. Compute Purple's tentative minimum tax for the year.Purple does not have any credits available to reduce the AMT liability.

What is a simple trust? A complex trust?

The Raven Trust was terminated this year and David,the beneficiary of the corpus,received all of the trust assets.The trust had a $10,000 net operating loss;this was the only tax year in which the trust operated a business.The entity has one income beneficiary,Flo.As a result of these transactions:

With respect to a timely filed Form 1041 for a trust based in Delaware,the IRS will accept:

The Yellow Trust incurred $10,000 of portfolio income.Its corporate trustee paid fiduciary fees of $1,000 therefrom.Yellow's accounting income is distributed as follows. · $5,000 to income beneficiary Larry · $4,000 to pay part of the high school tuition bills for Carrie,the daughter of Yellow's grantor Marcia How much gross income does Marcia include with respect to these trust activities?

Cost recovery deductions are assigned pro rata to the recipients of an estate's accounting income.

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 is required to distribute $30,000 to Roger and $60,000 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?

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

This year,the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) .Nano distributed $60,000 cash to Horatio,its sole income beneficiary.Nano is a simple trust.Nano's distribution deduction is:

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

Identify the parties that are present when an estate is created,and their key duties.A trust.

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.

Determine the tax effects of the indicated losses for the Yellow Estate for both tax years.The estate holds a variety of investment assets,which it received from the decedent,Mrs.Yellow.The estate's sole income and remainder beneficiary is Yellow,Jr.

The decedent's estate must terminate by the third anniversary of the date of death.

The fiduciary entity pays tax on the income that it retains and adds to corpus.

The Wilson Trust is required to distribute its accounting income every year,one-half to Missy Wilson,and one-half to the Lung Cancer Research Center.What is the Trust's personal exemption?