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Exam 20: Income Taxation of Trusts and Estates

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Question 31

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A trust might be used when a married couple is divorcing.

A) True
B) False

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Question 32

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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 trust that might be used to reduce probate costs, but not Federal estate and gift tax.

A) Complex
B) Decedent
C) Executor
D) Grantor
E) Living
F) Reversionary
G) Simple
H) Sprinkling
I) Trustee

J) C) and F)
K) F) and G)

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Question 33

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

The trust usually makes a distribution to the income beneficiaries in the amount of its fiduciary ____________________ income.

With respect to a trust's timely filed Form 1041, the IRS will accept:

This year, the Huang Trust is a complex trust. This year, it distributed all of its accounting income and $5,000 from corpus, to its sole income beneficiary Kun. Huang's taxable income for the year is:

For each of the following independent statements, choose the best answer. -The entity must file an income tax return if its gross income for the year is $600 or more.

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

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

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

The Crown Trust distributed one-half of its accounting income to Lee this year. Lee also is allocated one-half of Crown's credit for building low-income housing.

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.

The rental income of a trust usually is allocable to ____________________ (income, remainder) beneficiaries.

For each of the following independent statements, choose the best answer. -The entity is controlled by Federal-level probate laws.

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 (DNI) includes $9,000 for the interest income.

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%/20% tax rate.

Generally, capital gains are allocated to fiduciary income, because they arise from current-year transactions as directed by the trustee.

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?

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.

For each of the following independent statements, choose the best answer. -Distributable net income is used to account for distributions by the entity to its beneficiaries.