Question 1

Which of the following statements regarding the taxation of a trust is incorrect?

Accepted Answer

An irrevocable trust's income is not taxed to the grantor. Instead, it is taxed to the trust itself or to the beneficiaries who receive the income from the trust.

Question 2

Identify which of the following statements is false.

Accepted Answer

Assets in a revocable trust do avoid probate.

Question 3

Revocable trusts means

Accepted Answer

Revocable trusts are trusts that allow the grantor to retain control over the assets in the trust and to easily make changes to the trust or revoke it altogether. One of the main benefits of a revocable trust is that the assets in the trust avoid probate, which can be time-consuming and expensive. So, the correct answer is D, the assets in the trust avoid probate.

Question 4

Beneficiaries of a trust may receive

Accepted Answer

Beneficiaries of a trust can receive a remainder interest, an income interest, or both, depending on the terms of the trust.

Question 5

This year, the Huang Trust received $20,000 of dividends and $30,000 of tax- free interest. It distributes all of its receipts to its beneficiary. How should the beneficiary treat the distribution?

Accepted Answer

The answer of This year, the Huang Trust received $20,000...

Question 6

If a state has adopted the Revised Uniform Principal and Income Act, which of the following statements is correct?

Accepted Answer

The Revised Uniform Principal and Income Act allows the trust document to define income and principal, and this definition will take precedence over state law definitions.

Question 7

For purposes of trust administration, the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.

Accepted Answer

The term "sprinkling" actually relates to the discretionary distribution of income among beneficiaries, rather than mandatory distributions.

Question 8

Briefly discuss the reasons for establishing a trust.

Accepted Answer

The answer of Briefly discuss the reasons for establishing a...

Question 9

Identify which of the following statements is false.

Accepted Answer

An estate or trust is generally taxed on income that is retained, not on income that is distributed to beneficiaries. Distributed income is typically taxed to the beneficiaries.

Question 10

The executor or administrator is responsible for all the following estate duties except

Accepted Answer

The executor or administrator is responsible for paying the debts and taxes of the estate, collecting the assets, and distributing the property to beneficiaries. However, preserving the estate's existence as a separate taxpayer is not a duty of the executor or administrator. This is the responsibility of the estate's accountant or tax advisor.

Question 11

The term "trust income" when not preceded by an explanatory word relates most closely to

Accepted Answer

Trust income generally refers to net accounting income, which is the income available for distribution to beneficiaries after accounting for expenses.

Question 12

The conduit approach for fiduciary income tax means

Accepted Answer

The conduit approach for fiduciary income tax means that the distributed income has the same character in the hands of the beneficiary as it has to the trust. This means that if the trust receives interest income, for example, and distributes it to the beneficiary, the beneficiary must report it on their tax return as interest income. This allows the income to be taxed only once, at the individual level, rather than at both the trust and individual levels.

Question 13

Which of the following statements is incorrect?

Accepted Answer

Subchapter K of the Internal Revenue Code deals with partnerships, not estates and trusts. Estates and trusts are governed by Subchapter J.

Question 14

A tax entity, often called a fiduciary, includes all of the following except

Accepted Answer

All of the above entities (complex trusts, estates, and testamentary trusts) are considered tax entities and are commonly referred to as fiduciaries. Therefore, none of the options listed are excluded from being a fiduciary.

Question 15

An inter vivos trust may be created by all of the following except

Accepted Answer

An inter vivos trust is created while the trustor (the person establishing the trust) is still alive. It can be created by a grantor (the person who funds the trust), a transferor (the person who transfers ownership of property to the trust), or a combination of the two. However, an executor (a person responsible for carrying out the provisions of a will) cannot create an inter vivos trust.

Question 16

A trust has net accounting income of $15,000. In addition, the trust has a $10,000 capital gain, which is not included in net accounting income. The trust is required to distribute the trust income to the beneficiary. The beneficiary will receive

Accepted Answer

The beneficiary will receive the net accounting income of $15,000, as the capital gain is not included in the distributable income.

Question 17

Briefly discuss some of the reasons for using a revocable trust.

Accepted Answer

The answer of Briefly discuss some of the reasons for...

Question 18

Identify which of the following statements is false.

Accepted Answer

State trust law does not necessarily preempt the trust document when defining income. In some cases, the trust document may include specific provisions regarding how income is defined and allocated. However, in general, state law may provide guidance or default rules if the trust document is silent on these issues.

Question 19

Texas Trust receives $10,000 interest on U.S. Treasury bonds and $15,000 interest on State of New York bonds. All $25,000 is distributed to the trust beneficiary, Gary. Which of the following statements is correct?

Accepted Answer

Gary has received $10,000 of taxable interest income from U.S. Treasury bonds and $15,000 of tax-free interest income from State of New York bonds. The taxability of the interest income depends on the issuer of the bonds. The interest income from U.S. Treasury bonds is taxable at the federal level but exempt at the state level, while interest income from State of New York bonds is exempt from federal taxes but taxable at the state level. Therefore, Gary has both taxable and tax-free interest income.

Question 20

The governing instrument for the Lopez Trust contains no definitions of income and principal. The Trust is locat state that has adopted the Uniform Act. In the current year, the trust reports the following receipts and disburse Dividends $\quad$$\quad \$ 10,000$
Proceeds from sales of stock, including $\$ \mathbf { 1 0 , 0 0 0 }$ of gain $\quad$$\$ 40,000$
Trustee's fee, all charged to income $\quad \$ 500$
CPA's fee for preparation of $\operatorname { tax }$ return $\$ 200$ What is the trust's net accounting income?

Accepted Answer

The answer of The governing instrument for the Lopez Trust...

Quiz 14: Income Taxation of Trusts and Estates

Which of the following statements regarding the taxation of a trust is incorrect?

Identify which of the following statements is false.

Revocable trusts means

Beneficiaries of a trust may receive

This year, the Huang Trust received $20,000 of dividends and $30,000 of tax- free interest. It distributes all of its receipts to its beneficiary. How should the beneficiary treat the distribution?

If a state has adopted the Revised Uniform Principal and Income Act, which of the following statements is correct?

For purposes of trust administration, the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.

Briefly discuss the reasons for establishing a trust.

Identify which of the following statements is false.

The executor or administrator is responsible for all the following estate duties except

The term "trust income" when not preceded by an explanatory word relates most closely to

The conduit approach for fiduciary income tax means

Which of the following statements is incorrect?

A tax entity, often called a fiduciary, includes all of the following except

An inter vivos trust may be created by all of the following except

A trust has net accounting income of $15,000. In addition, the trust has a $10,000 capital gain, which is not included in net accounting income. The trust is required to distribute the trust income to the beneficiary. The beneficiary will receive

Briefly discuss some of the reasons for using a revocable trust.

Identify which of the following statements is false.

Texas Trust receives $10,000 interest on U.S. Treasury bonds and $15,000 interest on State of New York bonds. All $25,000 is distributed to the trust beneficiary, Gary. Which of the following statements is correct?