Question 1

The Ming Trust distributes an asset to its income beneficiary that shows a realized gain. What are the Federal income tax consequences of the distribution? What if the asset shows a realized loss?

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Question 2

Your client Ming is a complex trust that operates exclusively in the United States. Make a list of five or more tax planning opportunities that you might suggest to Ming.

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Question 3

Does the distributable net income of an estate or trust always equal its deduction for distributions to beneficiaries?
Are the two amounts ever equal in amount? Answer for estates, simple trusts, and complex trusts.

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Question 4

The DaSinzi Estate has two equal income beneficiaries (Rollo and Luisa) and one remainder beneficiary (Coco).
The estate operates a business and generates cost recovery deductions. Which taxpayer(s) (e.g., the deceased, the estate, Rollo, Luisa, or Coco) if any, can deduct these items?

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Question 5

Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? How is it used in computing the parties' taxable incomes?

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Question 6

Consider the term fiduciary accounting income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?

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Question 7

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is simple or complex? When is this determination made?

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Question 8

The Circle Trust reports some exempt interest income for the year. How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?

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Question 9

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

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Question 10

You are responsible for the Federal income tax filings of the Tyrone Trust. Summarize the relevant due dates and filing requirements for Tyrone.

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Question 11

Identify the parties that are present when an estate is created and their key duties. Then do the same for a trust.

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Question 12

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.

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Question 13

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, because I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

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Question 14

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

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Quiz 28: Income Taxation of Trusts and Estates