Deck 17: Trusts

Question 1

A trust that is created upon the death of an individual,and which is taxed applying the full range of tax rates within the individual's progressive scale is a(n):

A) Unit investment trust
B) Inter vivos trust
C) Investment trust
D) Testamentary trust

Answer 1

D

Question 2

Which of the following statements accurately describes the rules pertaining to testamentary trusts?

A) Testamentary trusts must use the calendar year as their taxation year, and they are subject to the highest federal personal tax rate.
B) Testamentary trusts must use the calendar year as their taxation year, and they may apply the full range of rates from the personal graduated tax rate scale.
C) Testamentary trusts may use the calendar year as their taxation year or choose a taxation year that ends within twelve months of inception of the trust, and they are subject to the highest federal personal tax rate.
D) Testamentary trusts may use the calendar year as their taxation year or choose a taxation year that ends within twelve months of inception of the trust, and they may apply the full range of rates from the personal graduated tax rate scale.

Answer 2

D

Question 3

If a trust qualifies as a spousal trust,which of the following does not apply?

A) Property is deemed to have been sold at its cost amount when transferred to the trust.
B) Upon the death of the surviving spouse, the trust property is deemed to be sold at market value.
C) Both the spouse and any adult children can receive the capital of the trust prior to the settlor's death.
D) In many situations, the assets in the trust remain tax-free until the death of the surviving spouse due to the waiver of the 21-year rule at the first 21-year anniversary.

Answer 3

C

Question 4

Walter Adamson passed away this year at the age of 62.
Previously,Walter had structured his will so that his wife would receive his stocks and land,to be held in a trust on her behalf.Additionally,his 33 year old son,Steven,would receive a building to be held in a trust until Steven reached the age of 45.
The assets transferred to Mrs.Adamson consist of a piece of land with an ACB of $100,000 and a FMV of $300,000; and stocks valued at $200,000,with a cost base of $150,000.
The assets transferred to Steven consist of a building with an ACB of $200,000,a UCC of $180,000,and a FMV of $300,000.
Required:
Discuss the immediate tax consequences for Walter's tax return,Mrs.Adamson,and Steven,regarding the initial transfer of these assets,showing calculations where necessary.

Question 5

Jasmine is the beneficiary of an inter vivos trust.During 20X4,the trust received the following income:
Capital gains: $16,000
Interest: $12,000
Non-eligible dividends: $8,000
One half of the trust's income from 20X4 was paid to Jasmine,who does not currently have any other sources of income.The remainder of the income stayed in the trust.
Required:
a)Determine the federal tax payable for Jasmine.
b)Explain how the federal tax liability will differ for the trust.(Support your answer with calculations.)

Question 6

Which of the following statements is true regarding trusts?

A) Losses that exceed income in a trust are allocated to the beneficiary for tax purposes.
B) If an individual, who is the beneficiary of a trust, has a tax rate in the year that is greater than the tax rate of his/her trust, amounts payable to the beneficiary from the trust can be designated not to be payable.
C) Income that is payable to a beneficiary cannot be subtracted from the trust's income.
D) The residence of a trust is determined by the residence of the trustees.

Question 7

Your friend Andrew has heard that you are studying Canadian income taxation.He has heard people discussing something called the '21 Year Rule' with regard to trusts.He has come to you with questions regarding this rule,since his father recently established inter vivos trusts for Andrew and his mother.
Required:
Briefly answer the following questions.(Base your answers to Questions 1 - 4 on non-spousal trusts.)
1)What is the purpose of the "21 Year Rule"?
2)What event occurs on the 21^st anniversary of a trust?
3)What types of properties are subject to the 21 Year Rule?
4)How can the consequences of the 21 Year Rule be avoided?
5)What is the exception to the 21 Year Rule for spousal trusts?

Question 8

A trust account holds two buildings as its assets.Building 1 originally cost $150,000 and Building 2 originally cost $210,000.It is now the 21^st anniversary of the trust,and the assets have not been transferred to the beneficiary.The undepreciated capital cost of Building 1 is $85,000 and its market value is $200,000.The undepreciated capital cost of Building 2 is $145,000 and its market value is $190,000.Which costs will be the deemed acquisition values of the buildings for the trust?

A) B1 = $150,000; B2 = $210,000
B) B1 = $85,000; B2 = $145,000
C) B1 = $200,000; B2 = $190,000
D) B1 = $200,000; B2 = $210,000