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Exam 28: Income Taxation of Trusts and Estates

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Question 1

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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.

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The Raja Trust's cost recovery deduction...

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Question 2

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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 $50,000.Harry's AGI can increase by as much as $40,000.

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Question 3

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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?

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.

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 is computed net of the full $3,000 deduction for the fees.

The Crown Trust distributed one-half of its accounting income to Lee this year.Lee also is allocated one-half of Crown's credit for building low-income housing.

The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent.The deduction is claimed against the Federal estate tax,unless by election it is claimed on the estate's income tax return.

Under the general rules of Subchapter J,whoever receives the ____________________ income of a trust or estate is the one who pays tax on it.

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

The Ulrich 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 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 $20,000 to Roger and $20,000 to Sally.How much gross income from the trust must Sally recognize?

A trust might be used by the parties to an impending divorce.

A ____________________ trust is a revocable entity that is used to avoid probate upon the death of the grantor.

The Roz 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 must distribute $30,000 to Roger and $30,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $10,000 to Roger and $30,000 to Sally.How much gross income from the trust must Sally recognize?

List some of the most commonly encountered motivations for creating fiduciary entities.

Entity accounting income is controlled by the terms of the ____________________ for an estate or the ____________________ for a trust.

The Exeter Trust instrument provides that Tamara,the sole income beneficiary,is to receive $30,000 annually.If trust accounting income is not sufficient to pay this amount,the Exeter trustee is empowered to invade corpus to the extent necessary.During the current year,the trust has distributable net income (DNI) of $100,000,including $20,000 of tax-exempt interest.In accordance with the trust instrument,$30,000 is paid to Tamara.What is Tamara's gross income from Exeter for the current year?

An example of income in respect of a decedent is the taxpayer's last paycheck,uncollected at death.

A gift to charity from its 2011 income is deductible on an estate's Form 1041 if it is made by the end of the ____________________ tax year.

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?

Three weeks after Tina died,her brother Tony properly received Tina's last paycheck from her employer.The gross amount of the check was $4,000,and a $700 deduction for state income taxes was subtracted in computing the net amount of the payment.Which of the following statements is true?