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Exam 20: Income Taxation of Trusts and Estates

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Question 61

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The Doyle Trust reports distributable net income of $100,000 for the year 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 can 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?

A) $70,000
B) $60,000
C) $40,000
D) $20,000

E) A) and C)
F) B) and C)

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Question 62

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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?

A) $20,000 by Marilyn and $40,000 by Domingo.
B) $15,000 by Marilyn and $15,000 by Domingo.
C) $13,500 by Marilyn and $13,500 by Domingo.
D) $9,000 by Marilyn and $18,000 by Domingo.

E) All of the above
F) A) and D)

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Question 63

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The Stratford Estate incurs a $25,000 legal fee in disposing of the decedent's real property. The executor can decide to claim a $5,000 deduction against the Federal estate tax and a $20,000 deduction on the estate's income tax return.

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.

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 interest income.

Entity accounting income is controlled by the terms of the_________ for an estate or the ____________________ for a trust.

Your client Pryce is one of the income beneficiaries of the Santiago Trust. Pryce says to you, "I want all of the exempt interest income from Santiago to be allocated to me, because I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? How is it used in computing the parties' taxable incomes?

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

Which of the following taxpayers use a Schedule K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries?

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.

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

For each of the following independent statements, choose the best answer. -For a calendar year entity, the Form 1041 has an unextended due date of April 15.

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 $50,000.

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

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

Reyes contributed assets to a trust and designated daughter Maria as the income beneficiary and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee paid $5,000 of this amount as Julio's high school tuition. Reyes pays Federal income tax on $5,000 for the year.

Judy can claim one-third of the Sweet Estate's cost recovery deductions, because she received one-third of the fiduciary's distributable net income DNI).

The Uldis Trust reports distributable net income of $100,000 for the year 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 can 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 Gomez Trust is required to distribute $80,000 annually split equally between its two income beneficiaries, Lara and Byron. If trust income is not sufficient to pay these amounts, the trustee can invade corpus to the extent necessary. During the current year, the trust reports DNI of $60,000. Byron receives an additional $30,000 discretionary corpus distribution. a. How much of the $40,000 distributed to Lara is included in her gross income? b. How much of the $70,000 distributed to Byron is included in his gross income? c. How much of these distributions are first-tier distributions or second-tier distributions?