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Exam 28: Income Taxation of Trusts and Estates

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Question 61

True/False

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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.

A) True
B) False

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Question 62

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

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Question 63

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The Ming 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?

Usually, a beneficiary takes a carryover basis when a trust distributes a noncash asset.

The Form 1041 of a calendar year trust is due on 15 (not including extensions) of the following year.

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 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.

In computing distributable net income (DNI) for a trust, one removes any net capital gain or loss that is allocable to income.

This year, the Suarez Trust generated distributable net income (DNI) 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?

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

The Code defines a simple trust as which of the following?

When a beneficiary receives a distribution from a trust of an asset other than cash, the realized loss generally is (recognized, not recognized) by the trust.

Ellie, a calendar year individual, wants to make a gift to a charity that is deductible on her year 1 Form 1040. The gift must be made by Ellie:

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.

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 beneficial Federal income tax rate on long-term capital gains.

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

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 Griffin Trust makes a gift of long-term capital gain property to a qualifying charity. Griffin's entity-level deduction cannot exceed 30% of distributable net income.

The Julius Trust made a gift to the United Charity on August 1, year 2, from its year 1 business profits. The trust's charitable contribution deduction can be claimed in year 2.

The Yellow Trust incurred $10,000 of portfolio income. Its corporate trustee paid fiduciary fees of $1,000 therefrom. Yellow's accounting income is distributed as follows: ∙ $5,000 to income beneficiary Larry. ∙ $4,000 to pay part of the high school tuition bills for Carrie, the daughter of Yellow's grantor Marcia. How much gross income does Marcia include with respect to these trust activities?