Deck 19: Income Taxation of Trusts and Estates

Question 1

The trustee of the Jefferson Trust is not required to distribute all of the current-year annual accounting income of the trust to its sole beneficiary, Sydney.The trust's personal exemption is

A)$600.
B)$300.
C)$100.
D)$0.
E)Some other amount.

Answer 1

C

Question 2

The trust instrument provides that Tyson, the sole income beneficiary, is to receive $150,000 annually.If the trust accounting income is not sufficient to pay this amount, the trustee is empowered to invade corpus to the extent necessary.During the current year, the trust has distributable net income of $200,000, including $70,000 of tax-exempt interest.In accordance with the trust instrument, $150,000 is paid to Tyson.How much income is taxable to Tyson for the current year?

A)$52,500.
B)$97,500.
C)$150,000.
D)$200,000.
E)None of the above.

Answer 2

B

Question 3

The Nixon Trust has distributable net income for the year of $300,000 and no income from tax-exempt sources.Under the terms of the trust instrument, the trustee must distribute $75,000 to Harrison and $225,000 to Patsy.After paying these amounts, the trustee is empowered to make additional distributions at its discretion.Exercising this authority, the trustee distributes an additional $30,000 to Harrison and $30,000 to Patsy.How much gross income from the trust must Harrison recognize?

A)$300,000.
B)$225,000.
C)$212,500.
D)$75,000.
E)$30,000.

Answer 3

D

Question 4

During the current year, a trust received $260,000 of taxable interest income, paid trustee's commissions of $60,000, and had no other income or expenses.The trust instrument requires that $70,000 be paid annually to Rachel, and $130,000 be paid annually to Courtney.How much income must Rachel and Courtney recognize for tax purposes?

A)$91,000 by Rachel and $169,000 by Courtney.
B)$100,000 by Rachel and $100,000 by Courtney.
C)$70,000 by Rachel and $130,000 by Courtney.
D)$130,000 by Rachel and $70,000 by Courtney.
E)None of the above.

Question 5

The Reagan Trust has distributable net income for the year of $200,000 and no income from tax-exempt sources.Under the terms of the trust instrument, the trustee must distribute $180,000 to Chloe and $120,000 to Sierra.After paying these amounts, the trustee is empowered to make additional distributions at its discretion.Exercising this authority, the trustee distributes an additional $75,000 to Chloe and $75,000 to Sierra.How much gross income from the trust must Chloe recognize?

A)$195,000.
B)$120,000.
C)$86,667.
D)$80,000.
E)$75,000.

Question 6

The Roosevelt Trust generated a net operating loss this year of $300,000.The Trust terminates December 31, 2009.Sienna receives $200,000 of corpus upon termination and Barry receives the remaining $300,000.Both Sienna and Barry are calendar year taxpayers.Which of the following statements is correct?

A)Neither beneficiary gets a deduction this year.
B)Sienna deducts $150,000.
C)Barry deducts $180,000.
D)Sienna and Barry each deduct $150,000.
E)Sienna, Barry, and the Trust each deduct $100,000.

Question 7

The Madison Trust incurred the following items during the year. $\begin{array}{lc}\text { Taxable interest received } & \$ 400,000 \\\text { Tax-exempt interest received } & 200,000 \\\text { Charitable gift paid } & 100,000 \\\text { Tax preparation fees paid } & 20,000\end{array}$ What is the Trust's deduction for the tax preparation fees?

A)$0.
B)$6,667.
C)$10,000.
D)$13,333.
E)$10,000

Question 8

The Washington Estate generated distributable net income this year of $200,000, one-tenth of which was tax-exempt interest, and the balance of which was long-term capital gain.Felicity Washington, the sole income beneficiary of the Estate, received a distribution of the entire $250,000 fiduciary income of the entity.How is this distribution accounted for by Felicity?

A)$250,000 ordinary income.
B)$225,000 long-term capital gain, $25,000 exempt interest.
C)$200,000 ordinary income.
D)$20,000 long-term capital gain, $180,000 exempt interest.
E)$180,000 long-term capital gain, $20,000 exempt interest.

Question 9

The Harding Estate generated distributable net income this year of $90,000, one-third of which was tax-exempt interest, and the balance of which was long-term capital gain.Branden Harding, the sole income beneficiary of the Estate, received a distribution of the entire $100,000 fiduciary income of the entity.How does Branden report the distribution?

A)$100,000 ordinary income.
B)$66,667 long-term capital gain, $33,333 exempt interest.
C)$90,000 ordinary income.
D)$60,000 long-term capital gain, $30,000 exempt interest.
E)$30,000 long-term capital gain, $60,000 exempt interest.

Question 10

Beneficiary Shaquille received $50,000 from the Adams Trust.Applying the trustee's discretion, $30,000 of the distri?bution was from accounting income, and $20,000 was from trust corpus.Beneficiary Susan received $20,000 from the trust, all of which was from accounting income.The trust generated $30,000 in cost recovery deductions.Its accounting income for the year was $50,000.How much can Shaquille deduct with respect to the cost recovery deductions that Adams generated?

A)$30,000.
B)$18,000.
C)$12,000.
D)$0.
E)Some other amount.