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Exam 20: Income Taxation of Trusts and Estates

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Question 31

True/False

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A decedent's income in respect of a decedent is subject to the Federal income tax,but it is excluded from the estate tax.

A) True
B) False

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Question 32

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

A) True
B) False

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Question 33

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The Yellow Trust incurred $10,000 of portfolio income.Its corporate trustee paid fiduciary fees of $1,000 therefrom,and also paid $1,000 in premiums for a life insurance policy on Marcia,the grantor of the trust.How much gross income does Marcia include with respect to these trust activities?

If the grantor of a trust retains the right to receive borrowed funds from the trust at a zero interest rate,the entity ____________________ (is,is not)treated as a grantor trust.

Every ____________________ trust is allowed a $300 personal exemption.

Three weeks after Abed died,his brother Tony properly received Abed's last paycheck from his employer.The gross amount of the check was $4,000,and a $300 deduction for state income taxes was subtracted in computing the net amount of the payment.Which of the following statements is true?

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

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.

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 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.

Explain how the Federal income tax law applies to a fiduciary entity like a trust.Is the tax structure similar to that of an individual? A partnership?

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.

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

A complex trust automatically is exempt from the Federal AMT.

Bob is one of the income beneficiaries of the LaQuanda Estate,which is subject to a 45% marginal Federal estate tax rate,a 35% marginal Federal income tax rate,and a 5% marginal state income tax rate.This year,Bob received all of the sales commissions that were earned and payable to Lulu LaQuanda (cash basis)at her death.Compute Bob's § 691(c)deduction for the current year,given the following data.

When a beneficiary receives a distribution from a trust of an asset other than cash,the realized loss could be disallowed under the ____________________ rule.

Your client Pryce is one of the income beneficiaries of the Santiago Trust.Pryce says to you,"I want all of the exempt interest income from Santiago to be allocated to me,as I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

The Gibson Estate is responsible for the income in respect of a decedent (IRD)of Juanita Gibson,the deceased.Define the term IRD and describe its treatment for Federal tax purposes

List the three major functions of distributable net income (DNI)as that amount is used under Federal income tax law.

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 Clara?