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Exam 28: Income Taxation of Trusts and Estates

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Question 1

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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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False

Question 2

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The Form 1041 of a calendar-year trust is due on ____________________ 15.

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Question 3

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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? Where is it used in computing the parties' taxable incomes?

Which of the following is a typical duty of an executor?

A complex trust pays tax on the income that it retains and adds to corpus.

A ____________________ tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary. or

The grantor of a trust generally designates both ____________________ and ____________________ beneficiaries under the controlling agreement. or

The IRS encourages ____________________ filing for Forms 1041.

A fiduciary's cost recovery deductions are assigned corresponding to the disposition of entity ____________________ income for the year.

The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent. 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.

When a trust distributes an in-kind asset with a realized loss, most likely this loss should be allocated to and immediately deducted by the first-tier beneficiaries.

Counsell is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie, Lynn, Mark, and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year, the trust has ordinary business income of $40,000, a long-term capital gain of $20,000 (allocable to corpus), and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Figure 28.3 in the text to address the following items.

The Suarez Trust generated distributable net income (DNI) this year of $150,000, one-third 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 $90,000.Clark also received $90,000.How much of the trust's DNI is assigned to Clark?

Generally, an estate's taxable income is computed in a manner similar to that used for a(n) ____________________.

A realized loss is recognized by a trust when it distributes a non-cash asset.

An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.

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?

The deduction for the Goodman Trust's $100,000 gift to charity is ____________________ when one-fourth of Goodman's accounting income for the tax year is exempt interest income.

Corpus, principal, and assets of the trust are synonyms.

Your client Ming is a complex trust that operates exclusively in the U.S. Make a list of five or more tax planning opportunities that you might suggest to Ming.