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Exam 20: Income Taxation of Trusts and Estates

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Question 31

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Trusts typically use a calendar tax year.

A) True
B) False

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Question 32

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List the three major functions of distributable net income (DNI)in determining how the beneficiaries of a trust or estate account for their distributions received for the tax year.

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Question 33

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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 $30,000.Harry's AGI can increase by as much as $40,000.

Peggy,a trustee,has learned that the Olsen Trust has been characterized as a "grantor trust." What are the tax consequences of this status?

Can a trust document assign to specific income beneficiaries the right to receive certain tax-favorable items (e.g. ,MACRS deductions,exempt income)? Or must all distributions follow the character of income and deductions appearing in distributable net income (DNI)? Explain.

Which of the following taxpayers use a Schedule K and K-1 to pass through income,loss,and credit amounts to the owners or beneficiaries?

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

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

Can a trust or estate claim a deduction for cost recovery? Explain.

An estate cannot claim a § 199 domestic production activities deduction,as the deduction passes through to the income beneficiaries.

The executor of the Globe Estate has reported a $10 million gross estate for the entity,and a taxable estate that exceeds the exemption equivalent by $10,000.The estate incurred a $50,000 sales commission in disposing of the decedent's assets.There was no exempt income recognized by Globe this year.The executor can claim a $10,000 deduction for the commission against the taxable estate,thereby eliminating the estate tax liability.The remaining $40,000 can be deducted on the Form 1041 for the year of the expenditure.

An example of an expense in respect of a decedent is the state income taxes attributable to the taxpayer's last paycheck,uncollected at death.

A fiduciary's distribution deduction assures that current-year income is taxed only once.

The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is used to pay a life insurance premium on the grantor's spouse,Subchapter J rules are ignored,and the income is taxed to the grantor.

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

In the year in which an estate terminates,its beneficiaries receive and can use as their own any unexpired NOL carryforwards proportionately to the corpus assets that they received.

The Rodriguez Trust generated $200,000 in alternative minimum taxable income (AMTI) this year.The trust is subject to a marginal Federal income tax rate of:

Like a partnership,the fiduciary is a tax-reporting,but not a separate tax-paying entity.

Trusts are created exclusively to reduce tax liabilities.

An estate has $100,000 DNI,composed of $50,000 dividends,$20,000 taxable interest,$10,000 passive income,and $20,000 tax-exempt interest.The trust's two noncharitable income beneficiaries,Shanna and Tom,receive distributions of $75,000 each.How much of each class of income is deemed to have been distributed to Shanna? To Tom? Use the following template to structure your answer.