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Exam 20: Income Taxation of Trusts and Estates

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Question 41

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The Suarez Trust generated distributable net income (DNI) this year of $150,000, two-thirds of which was portfolio income, and the balance of which was exempt interest. Under the terms of the trust, Clara Suarez is to receive an annual income distribution of $30,000. At the discretion of the trustee, additional distributions can be made to Clara or to Clark Suarez III. This year, the trustee's distributions to Clara totaled $60,000. Clark received $90,000. How much of the trust's DNI is assigned to Clara?

A) $75,000
B) $60,000
C) $45,000
D) $30,000

E) A) and D)
F) A) and C)

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Question 42

Multiple Choice

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For each of the following independent statements, choose the best answer. -Undistributed income is subject to the additional tax on net investment income.

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

E) C) and D)
F) None of the above

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Question 43

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

This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) . Nano distributed $30,000 cash to Horatio, its sole income beneficiary. Nano is a complex trust. Nano's distribution deduction is:

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

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

For each of the following independent statements, choose the best answer. -The entity has a legal identity separate from its beneficiaries.

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?

Kip and his wife Biddie file calendar-year Form 1040 joint returns. Kip died this year on April 16. The Form 1040 is filed as a joint return, signed by Biddie and by Kip's executor.

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

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee accumulated $5,000 of this amount and added it to trust corpus. Reyes pays Federal income tax on $5,000 for the year.

Olsen has been determined to be a grantor trust by the IRS. What are the tax consequences of this tax status? What are the tax return filing requirements for Olsen and for Peggy, the donor of the trust's assets?

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 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 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 15% 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?

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.

The entity is a ___________________ trust if the grantor retains the power to revoke the trust.

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?

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

This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) . Nano distributed $60,000 cash to Horatio, its sole income beneficiary. Nano is a simple trust. Nano's distribution deduction is: