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Exam 28: Income Taxation of Trusts and Estates

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Question 31

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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?

A) Distribute the land to Eddie and make a § 643(e) election.
B) Distribute the land to Eddie and make no § 643(e) election.
C) Sell the land to a third party.
D) Neither sell nor distribute the land.

E) B) and D)
F) B) and C)

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Question 32

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"First-tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee.

A) True
B) False

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Question 33

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The Ulrich Trust has distributable net income (DNI) for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument, the trustee must distribute $60,000 to Roger and $60,000 to Sally.After paying these amounts, the trustee is empowered to make additional distributions at its discretion.Exercising this authority, the Ulrich trustee distributes an additional $15,000 to Roger and $15,000 to Sally.How much gross income from the trust must Roger recognize?

The Willis Trust instrument provides that Tamara, the sole income beneficiary, is to receive $40,000 annually.If trust accounting income is not sufficient to pay this amount, the Willis trustee is empowered to invade corpus to the extent necessary.During the current year, the trust reports distributable net income (DNI) of $100,000, including $30,000 of net tax-exempt interest.In accordance with the trust instrument, $40,000 is paid to Tamara.What is Tamara's gross income from Exeter for the current year?

A complex trust automatically is exempt from the Federal AMT.

Which, if any, of the following statements relates to the tax treatment of both estates and trusts?

____________________ is the maximum amount that can be included in the beneficiaries' gross incomes from the fiduciary for the year.

The Zhang Trust incurred the following items during the year. What is Zhang's deduction for the tax preparation fees?

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

Consider the term fiduciary accounting 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?

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 for the interest income.

When a beneficiary receives a distribution from a trust of an asset other than cash, generally a(n) ____________________ basis is assigned to the asset.

The Brighton Trust has 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 is required to distribute $25,000 to Roger and $50,000 to Sally.After payment of these amounts, the trustee is empowered to make additional distributions at its discretion.Exercising this authority, the Brighton trustee distributes an additional $20,000 to Roger, and $30,000 to Sally.How much income from the trust must Sally recognize?

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

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:

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum, a qualifying charity.The trust's personal exemption is:

The Booker Trust is your client. Complete the chart below, indicating Booker's trust accounting income for each of the alternatives.

Is a trust subject to the alternative minimum tax? Or does the trust "pass through" AMT items to its grantor and beneficiaries?

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 income.

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 (DNI) includes $9,000 for the interest income.