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Exam 20: Income Taxation of Trusts and Estates

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Question 51

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

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Question 52

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When DNI includes exempt interest income, the beneficiary includes less than the full amount of DNI in current-year gross income.

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Question 53

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The Yeoman Trust has generated several Federal income tax credits for this tax year. Which taxpayer(s), if any, can use these credits in computing a Federal income tax liability,e.g., the grantor, the trust, its income beneficiaries, its remainder beneficiaries? Answer for estates, simple trusts, and complex trusts.

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust that might be used to reduce probate costs, but not Federal estate and gift tax.

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

An estate's remainder beneficiary generally must wait until the entity is terminated by the executor to receive any distributions.

The Code defines a grantor trust as which of the following?

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust that is required to distribute annual accounting income.

The Suarez Trust generated distributable net income (DNI) this year of $150,000, two-thirds 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 $60,000. Clark received $90,000. How much of the trust's DNI is assigned to Clark?

The Zhao Estate generated distributable net income (DNI) this year of $100,000, one-fourth of which was tax-exempt interest, and the balance of which was long-term capital gain. Kyle Zhao, the sole income beneficiary of the estate, received a distribution of the entire $125,000 accounting income of the entity. How does Kyle report the distribution?

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

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.

A gift to charity from its 2015 income is deductible on an estate's Form 1041 if it is made by the end of the ____________________ (2015, 2016) tax year.

The first step in computing an estate's taxable income is the determination of its fiduciary accounting income for the year.

In computing distributable net income (DNI) for a trust, one removes any net capital gain or loss that is allocable to income.

Winston is classified as a grantor trust, because Harry, the donor, can revoke the trust. Consequently, Winston need not file an annual Form 1041, and Harry reports the trust items on his own Form 1040.

In computing the Federal taxable income of a trust, the ____________________ (first, last) step is to determine its fiduciary accounting income.

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee paid $5,000 of this amount as premiums for a life insurance policy on Anita, Reyes' wife. Reyes pays Federal income tax on $5,000 for the year.

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.

Income is taxed to the creator of a(n) ____________________ trust, instead of to the entity.