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Exam 28: Income Taxation of Trusts and Estates

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Question 1

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A fiduciary assigns its tax credits to beneficiaries corresponding to the disposition of its income for the year.

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Question 2

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

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B) False

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Question 3

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The Chen Trust incurred the following items during the year. What is Chen's deduction for the tax preparation fees? $\begin{array}{lr}\text { Taxable interest received } & \$ 40,000 \\\text { Tax-exempt interest received } & 60,000 \\\text { Tax preparation fees paid } & 5,000\end{array}$

The Zhong Trust is a calendar year taxpayer. Its Form 1041 is due on which date in the following year?

The Raja Trust operates a welding business. Its current-year cost recovery deductions properly amount to $75,000. Raja's accounting income was $100,000 of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee. Ruby also received a $25,000 discretionary corpus distribution. Raja's DNI was $80,000. Identify the treatment of Raja's cost recovery deductions.

Beginning with its tax year, an estate must remit quarterly Federal estimated income tax payments.

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 nontax .

Of the income received by the Atom Trust this year, 60% constituted municipal bond interest. Atom's trustee also made a $100,000 gift to the United Fund, a qualifying charity. The charitable deduction associated with this gift is limited to $60,000.

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

For each of the following independent statements, choose the best answer. -The entity is entitled to a personal exemption of $600.

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:

Three months after Brianna Timkin died, her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago. Which of the following statements is true?

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

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. -The entity's AMT preferences and adjustments pass through to the income beneficiaries.

The Chen Trust is required to distribute its accounting income every year, one-half to Missy Chen, and one-half to the local church's homeless shelter. What is the Chen Trust's personal exemption?

Jose is subject to the top marginal Federal income tax rates. Carlita is considering establishing a trust in which Jose would be an income beneficiary. Considering only income tax consequences, Jose should be designated as:

Does the distributable net income of an estate or trust always equal its deduction for distributions to beneficiaries? Are the two amounts ever equal in amount? Answer for estates, simple trusts, and complex trusts.

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: