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Exam 20: Income Taxation of Trusts and Estates

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Question 1

True/False

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A decedent's income in respect of a decedent is subject to the Federal income tax, but it is excluded from the estate tax.

A) True
B) False

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Question 2

Multiple Choice

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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) B) and D)
F) All of the above

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Question 3

Multiple Choice

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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?

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. -The fiduciary in charge of an estate.

The Uldis 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 $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 Sally recognize?

The Zhao Estate generated distributable net income (DNI) this year of $100,000, one-fourth of which was tax-exempt interest, and the balance of which was long-term capital gain. Kyle Zhao, the sole income beneficiary of the estate, received a distribution of the entire $125,000 accounting income of the entity. How does Kyle report the distribution?

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?

Reggie is one of the income beneficiaries of the LaQuanda Estate, which is subject to a 35% marginal Federal estate tax rate, a 35% marginal Federal income tax rate, and a 10% marginal state income tax rate. This year, Reggie received all of the sales commissions that were earned and payable to Lulu LaQuanda (cash basis) at her death. Compute Reggie's § 691(c) deduction for the current year, given the following data.

You are responsible for the Federal income tax filings of the Tyrone Trust. Summarize the relevant due dates and filing requirements for Tyrone.

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

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?

Trusts can select any Federal income tax year-end.

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

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

The Yellow Trust incurred $10,000 of portfolio income. Its corporate trustee paid fiduciary fees of $1,000 therefrom, and also paid $1,000 in premiums for a life insurance policy on Marcia, the grantor of the trust. How much gross income does Marcia include with respect to these trust activities?

For each of the following independent statements, choose the best answer. -​The entity is an information-reporting, not a tax-paying, taxpayer.

The Prakash Estate has equal income beneficiaries Sam and Janet. As allowed by the terms of the will, the estate makes no income distributions during the current tax year. The estate's personal exemption is:

Tax planning motivations usually predominate over other objectives in deciding whether to create a trust.

Under IRS regulations, the decedent's estate must terminate within four years of the date of death, so as to minimize income-shifting techniques.

The Moot Trust distributes an asset to its income beneficiary that shows a realized gain. What are the Federal income tax consequences of the distribution? What if the asset shows a realized loss?