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Exam 28: Income Taxation of Trusts and Estates

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Question 71

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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 has a legal identity separate from its beneficiaries.

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Question 72

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The deduction for the Sharma Trust's $100,000 gift to charity is ________________ when one-third of Sharma's accounting income for the tax year constitutes exempt interest income.

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Question 73

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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 ________________ .

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. a. Complex b. Decedent c. Executor d. Grantor e. Administrator f. Reversionary g. Simple h. Sprinkling i. Trustee -A trust whose income is taxed to the donor, not the beneficiaries.

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is "simple" or "complex?" When is this determination made?

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 is controlled by Federal-level probate laws.

Counsell 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 incurs ordinary business income of $40,000, a long-term capital gain of $20,000 (allocable to income), and a trustee commission expense of $4,000 (allocable to corpus). Use the format of Exhibit 20.5 in the text 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?

Dexter established a divorce trust to benefit his ex-wife Jena. The accounting income of the trust is distributed to Jena, in satisfaction of the year's alimony obligation. Under Subchapter J rules,________________ , (Dexter, Jena) and not the trust, is taxed on the amount of the distribution.

Income beneficiary Turk received $30,000 from the Urgent Trust. Trust accounting income for the year was $100,000. The trust generated $20,000 in cost recovery deductions. How much can Turk deduct with respect to the cost recovery deductions that Urgent generated?

In computing the Federal taxable income of a trust, the ________________ (first, last) step is to determine its fiduciary accounting income.

The trust instrument indicates whether cost recovery is ________________ to fiduciary accounting income, thereby reducing the amount of the distribution to the income beneficiary.

Marcus has been determined to be a grantor trust by the IRS. Your partner explains that this probably happened because the donor of the trust assets retained excessive powers over the operation of the trust or the use of its assets and income. To what powers is your partner referring?

Under the Federal income tax rules for trusts and estates, a(n) ________________ generally must use a calendar tax year, but a(n)________________ can select any tax year-end.

The interest income of a trust usually is allocable to ________________ (income, remainder) beneficiaries.

The Willa estate reports $100,000 DNI, composed of $50,000 dividends, $20,000 taxable interest, $10,000 passive income, and $20,000 tax-exempt interest. Willa's two noncharitable income beneficiaries, Shanna and Tom, receive distributions of $75,000 each. How much of each class of income is deemed to have been distributed to Shanna? To Tom? Use the following template to structure your answer.

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 is entitled to a personal exemption of $600.

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

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 was created by either a decedent or a living person.

The Prakash Trust is required to pay its entire annual accounting income to beneficiaries Sam and Janet. The trust's personal exemption is:

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