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Exam 28: Income Taxation of Trusts and Estates

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Question 51

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

A) One which is allowed to file Form 1041-EZ.
B) One which has only one income beneficiary.
C) One whose grantor was an individual who still is alive.
D) One which must distribute its accounting income every year.

E) None of the above
F) All of the above

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Question 52

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The Ellie Trust, a calendar-year entity, wants to make a gift to a charity that is deductible on its year 1 Form 1041. The gift must be made by Ellie:

A) During year 1.
B) During year 1 or 2.
C) On or before April 15, year 2.
D) On or before September 30, year 2.

E) C) and D)
F) B) and D)

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Question 53

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Like a corporation, the fiduciary reports and pays its own Federal income tax liability.

A complex trust pays tax on the income that it accumulates (i.e., that it does not distribute).

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 favorable Federal income tax rate.

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

The Gable Trust reports $20,000 business income and $10,000 exempt interest income, and it paid a $3,000 fiduciary fee. Gable's distributable net income includes $10,000 of net tax-exempt income.

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

Which of the following restrictions applies concerning distributions to trust beneficiaries?

The Willis Trust instrument provides that Tamara, the sole income beneficiary, is to receive $40,000 annually. If trust accounting income is not sufficient to pay this amount, the Willis trustee is empowered to invade corpus to the extent necessary. During the current year, the trust reports distributable net income (DNI) of $100,000, including $30,000 of net tax-exempt interest. In accordance with the trust instrument, $40,000 is paid to Tamara. What is Tamara's gross income from the Willis Trust for the current year?

A Form 1041 must be filed by a trust that has ________________$ or more gross income for the tax year.

Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?

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

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

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 12% 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?

For each of the following independent statements, choose the best answer. a. Tax attribute of complex trusts only b. Tax attribute of estates only c. Tax attribute of estates and complex trusts d. Tax attribute of neither estates nor complex trusts -The entity must file an income tax return if its gross income for the year is $600 or more.

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.

The Uldis 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 $75,000 to Roger and $75,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Uldis trustee distributes an additional $10,000 to Roger and $30,000 to Sally. How much gross income from the trust must Roger recognize?

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 $50,000. Harry's AGI can increase by as much as $40,000.

For each of the following independent statements, choose the best answer. a. Tax attribute of complex trusts only b. Tax attribute of estates only c. Tax attribute of estates and complex trusts d. Tax attribute of neither estates nor complex trusts -A decedent created the entity.